As I went over my GBPJPY position from this mornings London session, I had an epiphany that I needed to share.
Over the course of my almost 5 years trading, i’ve went through every phase of being a trader. From feeling like you found the holy grail and you’ll never have to worry about money again to over leveraging, blowing thousands in a day and wondering why you would do something so outrageously stupid after you watch it all vanish like the wind.
One thing that I realized changed my trading journey forever was one word. Uncertainty.
You see, everyone thinks the goal of trading is to study and practice until you win every single trade and are 100% profitable.
Unfortunately, this is impossible.
The market is based off of millions of peoples perceptions, beliefs, and ideals. Which means you’d need to be able to predict with 100% accuracy what each and every person is thinking or perceiving about the market at this split second.
Even with all of the technological advancements we’ve made over the last years, computers and algorithms can’t even trade the markets with that kind of accuracy.
Which takes us back to our main topic, Uncertainty.
By understanding that at ANY moment, the market can do ANYTHING, the way you approach the markets will change forever.
Most people approach the markets with a gambling mindset, risking 10,20,30,40,50% on one trade because this is the ONE. The setup is just too perfect and it set up just as they wanted it to.
There’s only one problem, you’re perceiving this as the perfect trade based off of previous memories. No two trades are the same, no matter how closely they resemble each other.
Which means there is no certainty that the trade will go your way and that it is based on probabilities.
The true goal of trading is to control your risk and manage your reward over a plethora of trades.
To help you understand this better, I did a little experiment.
I grabbed a quarter and flipped it 50 times.
Heads was a win
Tails was a loss
How many times did you think I got heads and how many times do you think I got tails?
With my experiment, I landed on heads 23 times and on tails 27 times.
That means I won around 46% of the time.
With a proper 1:3 risk reward trading plan risking $50 per trade (Let’s imagine this is 1-2% of your account) to make $150, I would have made $3,450 from my wins and lost $1,350 from the losses.
Overall profit $2,100
That’s with a 46% win ratio!
Now let’s take the same exact scenario but instead over leverage using 20% of the account.
Remember, the 23 wins and 27 losses can play out in any order.
For example, I landed on tails 4 times in a row. If you risked 20% per trade, you’d already be down 80%. Let’s say you had a $100 account to make it easy, now you have $20. Now even if you win a 1:3 RR trade, you’d only make $12 (20% of $20 x3). In order to dig yourself out of the hole you’re in you have to make 500% roi just to get back to where you started.
This is what amateur traders don’t understand.
When you know that there’s no certainty in the market, why would you put all your eggs in on one trade? Instead, understand that if you look at the probabilities over the next 50-100 trades, you’ll be profitable as long as you execute your trades properly.
There’s no rushing the markets, patience will always win.
I hope this gave you a little insight on how shifting your perception could be the last missing piece to the puzzle.