The Four Types of Trades
Написано EneaDoku , 24 Январь 2017 · 433 Просмотров
Most traders think there are two types of trades: winning trades and losing trades. Actually, there are four types of trades: winning trades and losing trades plus good trades and bad trades. Don’t confuse the concepts of winning and losing trades with good and bad trades. A good trade can lose money, and a bad trade can make money. A good trade follows a process that will be profitable (at an acceptable risk) if repeated multiple times, although it can lose money on any individual trade.
Suppose I offer to bet you on coin tosses with a coin you know is fair (your coin and your toss): heads, you pay me $100; tails, I pay you $200. You accept the bet, toss the coin, and it lands on heads. Was that a bad bet? Of course not. It was a good bet that was also a losing bet. But if we repeated that bet numerous times, you would fare very well, and taking the first bet was a correct decision, even though you lost money. Similarly, a losing trade that adheres to a profitable strategy is still a good trade because if similar trades are repeated numerous times, the process will win on balance.
Trading is a matter of probabilities. Even the best trading processes will lose a significant percentage of the time. There is no way of knowing a priori which individual trade will make money. As long as a trade adheres to a process with a positive edge, it is a good trade, regardless of whether it wins or loses, because if similar trades are repeated multiple times, they will come out ahead on average. Conversely, a trade that is taken as a gamble is a bad trade, regardless of whether it wins or loses, because, over time, such trades will lose money. As a betting analogy, a winning slot machine wager is still a bad bet (i.e., trade) because if repeated multiple times, it has a high probability of losing money.
3 Questions for you.
Answer in the comment section below, remember you can learn by reading but you will learn more by interacting with other people. I will make sure to reply to all of them.
- What are some of your own experiences, taking a bad trade that turned out winning money(details)?
- Would you rather experience a bad winning trade or a good losing trade?
- What criteria will you be using for now on to differentiate between good and bad trades?