Every Trade Is A Loser
Imagine entering each trade with the premise that it's going to be a loser. How do you suppose that'll affect your trading execution?
So I had this epiphany a few weeks ago:
What if each trade was a loser? What if I imagine the worst-case scenario, what would that mean?
So I started backtesting and calculating my risk based on the account size.
Aiming for 1-2% risk, often 2, I looked at how many trades I could afford to lose before the account closed.
And through the process, I learned to internalize what probabilistic trading is:
It’s assuming that the trade can go wrong and turn out to be a loser and still putting the trade on, long as your edge or signal is present.
I found myself with a small account that could afford me 50 losing trades based on the 2% max risk.
I kept looking at that the number 50 thinking to myself, there is no possible way I would take 50 consecutive losing trades based on where I am in my trading journey.
Presently, I have experienced profitability and consistency, but my risk-to-reward ratio has been terrible.
So I found myself often with a lot of winners often above 85% but experiencing bigger than necessary losses that wipe out too much effort.
I figured if I limited the risk significantly and increased the reward, at some point, within those 50 trades, I’m going to get those big winners that will help me cover some of the necessary losses.
Assuming each trade is a loser helped me really put a magnifying glass on the risk and reward of each trade.
This helped me navigate risk with the appropriate lens, which eventually helped cap the amount of bigger losses and emotional rollercoasters I had been experiencing.
This definitely changed my consistency ratio but it also brought me a level of controllable loss per trade that was more consistent and predictable.
In the past, I had been trying to predict my winners but I realize doing the opposite is more important for survival and great success.
Consider this idea and see if it helps your overall output.
It has changed the game for me and I hope the same for you.
Till next time,
Abe