You Don’t Have to Be Perfect to Be Successful
You don’t have to be perfect to make money.
We live in a society that punishes mistakes and rewards perfection. Olympic athletes who train for years may lose a chance at a medal by only a fraction of a second. Students may miss out on an A grade by making just one too many mistakes on a test. A person may die if a doctor makes a mistake.
This tendency towards being perfect often shows up in trading as well. It usually shows up with an over-focus on the entry point. Most people believe that perfect entries are the key to success in trading…but that’s simply not true.
Unlike real estate where the money is made on the buy… in trading, the money is made on the sell. This seems counterintuitive but also true.
All traders (whether they know it or not) operate within the laws of probability. It’s possible to control your outcome (profits) simply by choosing where you set your stop losses.
Here are three main buckets of probabilities:
- Risk 1 to make 2 = win about 33% of trades
- Risk 1 to make 1 = win about 50% of trades
- Risk 2 to make 1 = win about 67% of trades
In this scenario, the “Risk” portion is where you set your stop loss. The “Make” portion is where you set your profit target. Notice both “Risk” and “Make” are exit points…not entry points.
Here is a 5-minute chart of the EUR/USD without any indicators. Spend some time with a chart proving to yourself that setting the right exits makes more money than setting the perfect entry. Pick a candle and set your entry point as the open of the next candle. Then use a pip as your “Risk” and “Make” increments.
What you’ll find is that you win some trades and you lose some trades and depending on how you set your profit targets compared to your stops, you’ll win or lose more trades.
The goal with this exercise is to help you overcome any block you may have for getting into the markets or into a trade when you see the opportunity. Many traders become gun shy after a few losses and struggle to get back into the markets. They may become “Ready, Aim, Aim, Aim, Aim, Aim, Aim… Aim” traders which see a setup, know they should take advantage of that setup… but don’t. Worse yet, they then watch as that setup makes money for the other guy.
You don’t have to be perfect to be successful as a trader….you just have to be trading!
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