One of the most common themes I see in emails is a tendency for traders to focus too much on the individual trade.
Every day… "I can't believe this trade lost. Can you tell me what I did wrong?"
Never do I get the following… "Looking at my longer term stats as they relate to my last 20 trades, I see my win:loss size ratio down quite a bit compared to the average across all samples of 20 trades. I have assessed the following probable causes and solutions. I'd love to know your thoughts!"
This is not a game of individual trades.
This is a game of longer term results.
We've touched on this theme a little in recent weeks.
Expect 50/50… profit from good trade management over the longer term: https://yourtradingcoach.com/trading-process-and-strategy/stop-hoping-your-trade-will-win/
Repeat the process… again and again and again… profiting over a series of trades (see step 6): https://yourtradingcoach.com/trading-process-and-strategy/its-a-process-2/
Individual trade results do NOT matter. Win, lose or draw… it's totally irrelevant. What matters is the combination of your win% and win/loss size ratio, over a longer-term sample of trades: https://yourtradingcoach.com/trading-process-and-strategy/omg-one-of-my-trades-lost-money/
But the emails continue… so let's examine the idea one more time in a slightly different way.
I don't remember when and where I first heard the following. But it really stuck with me as a great way to develop a longer-term mindset. A great way to trade with the right expectations.
- Expect your trades to comprise many breakeven results, many small wins and small losses that largely cancel each other out and slowly grind out a profit. Plus the occasional large winner that really gives a boost to your equity curve. But work to ensure you never get a large loss.
Your last trade might have lost. That's fine. Learn from it if you could have done better.
But as long as you didn't let the loss get out of hand, it's nothing unexpected.
Expect breakeven trades… it's just part of the game!
Expect many small losses… it's just part of the game!
Expect many small wins… it's just part of the game!
And while we're at it, expect many missed trades… it's just part of the game!
Aim for these misses, scratches, small wins and small losses to overall cancel each other out, cover costs, and ideally grind out a small rising equity curve.
And expect the occasional larger win which gives a real boost to your equity curve.
But under no circumstances should you allow your losses to become larger than their initial 1R risk.
Expect scratches, small losses, small wins and the occasional big win. But… NO BIG LOSSES.
Profit over the long term over a series of trades.
I loved this amazing article. Thanks so much!!!
You’re welcome Jay. I’m glad you liked it. 🙂