You can’t win them all!
Late Tuesday night I spotted a potential setup forming on GBP/JPY. The setup did not look amazing, but it had a lot of points in its favour. So, I stayed up until 3:00 am my time to take the trade, I do not normally stay up late for trades, but I felt like taking this one. That is where the video below starts. I entered short on GBP/JPY at 169.57, with a target at 167.15, and a stop at 170.53.
After a lot of movement up and down, the trade pushed up and hit my stop loss…
… Does it bother me? No, not at all. I explain why it doesn’t bother me below, but first, check out the video:
Forex trading is not about winning
Despite what a lot of people think, Forex trading is not about being right a majority of the time. You can be wrong 60% of the time and still be profitable, you can even be wrong 80% of the time and still be profitable.
This year, my goal is to have an average risk to reward ratio of 1:3, but my bare minimum on any trade is 1:2. So, what do these numbers mean?
Well, lets say I take 100 trades this year all with a minimum ratio of 1:2. Overall on these trade I am right 60% of the time, and wrong 40% of the time. A winning trade earns me £2,000 and a losing trades costs me £1,000.
The numbers are all hypothetical and they do not reflect my true profit or loss per trade. I just chose some easy numbers for this example. My actual win rate should be around 65%-75% this year, based on data from previous years.
60 x £2,000 = £120,000
40 x £1,000 = £40,000
£120,000 – £40,000 = £80,000
So, if I was right 60% of the time, I would be quite profitable.
But what if I am wrong 60% of the time?
40 x £2,000 = £80,000
60 x £1,000 = £60,000
£80,000 – £60,000 = £20,000
So I would be profitable even though I am wrong the majority of the time. Obviously I would be much less profitable, but I would be profitable.
Am I expecting to lose 60% of all my trades this year? Definitely not, I expect to win 70% of my trades!
However, I do not feel an overwhelming need to be right, even if I am wrong 60% of the time I will be profitable this year. And that is with a 1:2 risk to reward ratio, which will be my minimum.
Don’t let losing trades get you down
Next time you lose a trade, remember that losing trades is normal, and you do not have to be right to be profitable. There are traders who fail 70% of their trades and who are still profitable.
Having a good strategy and doing good analysis certainly is a big part of trading. The more times you are right, the more profit you will make. In the example above it is better to earn £80,000 in one year than it is to earn £20,000.
However, do not get too worried if you fail trades. If your money and risk management is good, you can afford to lose most of your trades and still come out on top.
One of the most destructive desires for traders is the need to be right. You do not need to be right, you need to be profitable.