Basic view of forex trading

“This is not a perfect game. I compile statistics on my traders. My best trader makes money only 63 percent of the time. Most traders make money only in the 50 to 55 percent range. That means you’re going to be wrong a lot. If that’s the case, you better make sure your losses are as small as they can be, and that your winners are bigger.” – Steve Cohen

I am convinced beyond reason that most new traders, and even a lot of experienced trader( not yet profitable) believe that in order to be successful at trading and make lots of money they have to be right most of the time. Obviously being right a lot helps and for some rare individuals it is possible, but without a doubt this approach and belief system isn’t the way to riches.

Have a think about all the different traders you know of, all the webinars and seminars you’ve been too, all the blogs, forums and discussions you’ve been apart of. When you think about them, you probably would of heard many people talk about success rates, in fact it’s the first question new traders ask when they learn about a trading system, “what’s the success rate and what’s the risk reward?”. They believe that they need/should be able to be right 70-80% of the time and have a risk reward of 1:2/1:3 and nearly all trading education is based on this methodology. It’s how they sell there courses, people work out the math with how much capital they have and figure out that based on the high success rate they should be a millionaire in a year or so  well the problem is most people think like this and tailor there strategies around this theory and yet most are continually losing money.

On the other hand, professional traders don’t take this approach. They know and understand that they are going to be wrong more than they will be right, yet they still make money year after year. They base there risk management on this fact and base there profit taking on it too.

Let me elaborate. If you take ten trades with equal risk, 9 of them hit your stop loss, but one goes on to make 1000% return, you will still make money overall. Not very much, but you won’t be in a loss. So in this case you could have a 10% success rate and still end up in the black.

Think about this for a minute, because it will change your trading forever. Now what if over time you mastered your trading and now 3-4 out of ten trades were 1000% profitable and 6-7 were losses, you would be making some real good money, whilst being wrong most of the time. Imagine how easy trading would be, no stress, no beating yourself up when you take a hit, because it doesn’t matter anymore. You only need to make on good profit to stay afloat and anything else on top of that is pure profit.

And you know what, it’s not that hard to do, in fact I’ve found its easy to make a 1000% profit (and more) on a trade because I know I don’t have to be right all the time, this gives me great confidence to hold onto trades as long as possible.

They most recent trade I’ve taken was short use/cad after the engulfing bar formed. I had a 55 pip stop loss and now I’m enjoying a 700% profit. I don’t know where this trade will go, maybe back up and close my position, maybe it will continue to go down, but the point is it doesn’t actually matter for me because I don’t have a belief system of being right all the time.

I know of a pro trader who is quite well known in the US, he teaches trading as well and the main strategy he uses to make most of his money has a success rate of about 30-40%. He makes bucket loads of money with this strategy. The sad thing is nearly all the people he teaches this too don’t make money, and that’s simply because they believe they have to be right most of the time. Because of this they close out trades for smaller profits, don’t hold on for the big ones and end up messing up there money management.

So in summary, if your strategy requires you to be right most of the time to make money, chances are it’s the wrong strategy.

Cheers