There is one mistake I see beginning traders constantly making. If you need to get kicked in the chin or knocked over the head to act, perhaps you should consider MMA, not trading. If you need this to actually do something — you really are missing the most basic thing of being a successful trader.
Your job is not to sit there like Johnny Bench waiting for the delivery of the perfect pitch. Your job is to think in probabilities, to think in numbers and expectancy. This is one advantage for becoming a better trader by learning how to play poker. In poker, they have this rule about positive expectancy. It basically involves not waiting for your power hands to arrive before you play.
Sure, you can wait for AA or AK suited before you get involved in the pot, but you are passing up many hands that make money in the long term. You are passing up hands that have positive expectancy. It is important to remember trading is not a fashion contest. Trading is thinking in probabilities and finding setups that make money over , 1, or 10,x.
You have to understand, that you may not make money on the trade right now, or even the next one, but if it makes money over the long run has positive expectancy then you need to pull the trigger. This is the difference between a beginning trader and a professional — they think in probabilities. They are comfortable with uncertainty , because they trust the process.
Now if you always target 3x your risk meaning if you risk 50 pips, you target pips each time , this system will make money. Beginning traders rationalize losing the next trades as being bad for their overall trading, when mathematically you can still make money. Professional traders are not worried about the next trade winning or losing. What they care about is making money long term and over time. They want to maximize their profits by playing the mathematics — by thinking in probabilities.
Although beginning traders hang their entire psychology, confidence and performance on the next trade — you have to look at the next one as just one free throw in the thousands you will make over time. A good visual for this is — if you are currently holding a hand full of sand you picked up from the beach — that each trade is like a single grain of sand.
If you are using proper risk management and thinking in probabilities, that one grain of sand is really insignificant. Put them all together, and it adds up to something more substantial, but by itself, it really means very little. Now imagine your positive upward sloping equity curve over the next few years, with hundreds of trades per year under your belt. That one grain of sand really means nothing in the entire equity curve of profitability. After a Long Trading Career.
If you can really grasp this, I guarantee after you have a long trading history with hundreds if not thousands of trades under your belt, one little trade will not mean anything to you. But what will matter, is if you pass up trades that have positive expectancy with lesser accuracy, you may lose massive profits over time.
Thus make sure to let go of whether the next trade will be a winner or a loser. Try not to invest too much energy in this. Start to think like a professional, and pull the trigger whether your next setup has high or low accuracy. If your price action strategy has positive expectancy, then that is what you need to know. I help traders of all levels change the way they think, trade and perform.
As a professional trader, I specialize in trading price action. As a teacher, my passion lies in showing you how to re-wire your brain for successful trading. Want to improve your edge right now? Visit my Price Action Course page. As long as you have low risk and high reward with mid-strenght set up, take the shot.. Another excellent piece Chris. Keep illuminating us all toward the path of becoming better traders! We take anything that will be positive expectation long term. That translates to pushing edges as little as Sure, you will undergo higher variance pushing such little edges, but after millions of hands, we know that as long as our expected value is positive, we play the hand.
This is why money management is so important in both poker and trading…when pushing such fine edges, you MUST make sure you have the bankroll to cover your swings which will be more and more substantial the smaller your positive expectation. Very nice article Chris! You really nailed the core aspect of trading here. The thing is that it is a skill that even a seasoned trader need to pay attention to all the time…otherwise will Mr. Emotions come on a visit when you least expect it;-. Yes, even seasoned traders need to be on alert and focused at every moment in the market and during the process as emotions can come in and really cloud the thinking and process as you mentioned.
Sometimes its harder for newer traders to trade systems which have less accuracy, even though they have positive expectancy. But when a trader is always thinking in numbers and positive expectancy — it changes the way they approach trading. Excellent article, very interesting and straight forward approach. After long time trading on forex every trader finally realize this business is a matter of probabilities.
Exactly — this is a game of probabilities, and when a trader realizes this, losing periods are just small points in a large data set. When they realize this, they start taking opportunities they would have passed up earlier because the math and edge will play out in the long run.
They would be losing hundreds of millions of dollars in profits, and its the same for traders. The information contained in or provided from or through this site is not intended to be and does not constitute financial advice, investment advice, trading advice or any other advice.
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Positive Expectancy In poker, they have this rule about positive expectancy. What Separates Beginning Traders from Professional Traders Professional traders are not worried about the next trade winning or losing.
After a Long Trading Career If you can really grasp this, I guarantee after you have a long trading history with hundreds if not thousands of trades under your belt, one little trade will not mean anything to you.
Chris Capre Buddhist, Trader and Philanthropist. You Might Also Enjoy. Another fine article Chris, Thank you and keep up the good work! Hello Stan, Thanks for the positive comments and glad you enjoyed it. Kind Regards, Chris Capre. Hello Jewell, Yes, this is a companion article to the video in the course. But glad you like it. As a professional poker player for over 10 years, I can really relate to this article. Great article, thanks for the read! Hello Pal, Good to hear from you.
But good to hear from you and all the best. So hopefully that clarifies things a bit on how I approach this. Dre and Jimmy Iovine 20 Engagements. What Builds Confidence in Trading? Fixed Dollar Amount Which is Better? Reactions to Stress in Trading Engagements. Frustration Leads to Learning 86 Engagements. Forex Strategies Featured Previous Next.
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