The performance of a trader often measured by the winning trades not with the good trade in the outside of trading world. Because in the end profit matters. That’s why everyone try to capture the big profits or massive trades. While evaluating the winning trades performance everyone forgets to ask what was the logic behind this winning trade, risk to reward ratio and all. But there is very thin line between the winning trade and the good trade. In today’s blog we will talk about how to measure the winning trades and the losing trades. What factors involves in this process and what factors affect this etc. Let’s understand one by one.
What Is a Winning Trade?
Winning trade is a trade which outcome driven trade rather than process driven trade. However these types trades involves are executed just to make money from the market by anyhow. It is taken just to feel excitement, joy, adrenaline and instant dopamine.
Characteristics Of Winning Trade
No Confirmation: Winning trade doesn’t involve any entry confirmation at the time of executing the trade. However this execution is based on the emotions and the urge of capturing the big move.
Risk Mitigation: Usually the profitable trades doesn’t includes pre-determined risk. As it runs in the market with the random stop losses and sometimes the whole capital is at the risk.
High Position Sizing: Most of the winning trades are being taken with the increased trade sizing, just to make big profit in the small captured pips. This covers the placement of invalid stop loss and the risk to rewards ratio.
Haphazard Trades: In the urgency of making the profits. Traders often places the trades at the random level in the hope of capturing the move. Meanwhile this creates fear and fomo in them because they don’t have anything in the trade to deal with uncertainties of the market. This leads them to do revenge trading.
However the traders still make money by trading with this pillars but it is sustainable in the long run.
What Is a Good Trade?
A good trade is what who follows the all the trading rules, trades with stop loss to deal with the unpredictabilities of the market and executed only on the setup. However a good trades decision is solely based on the process instead of the outcome.
Signs Of A Good Trade
Method Based: However a good trades always follow the process avoiding all the market disturbance. These trades always taken with process based intentions not with emotions driven intentions.
Controlled Risk: These trade always have defined risk before placing it into the markets. Eventually it reduces the stress, frustration because you know more than this you won’t lose. As a results it protects your psychology and it gives you the comfort to see your trade patiently and let the market do their miracle.
Replicable Process: Repeating the same process everyday instead of changing it everyday. This process removes emotional decision making because in trading repeating the same process will reduce the fear fomo and frustration.
Accepting The Results: Despite of a good trade or a winning trade, any trade can make you face the loss. But repeating the same will make you accept the risk as the stop loss.
Why Winning Trades Can Be Misleading
One of the biggest myth is winning trade is a good trade. Meanwhile it doesn’t involves any rules and regulations of the trading system as i have described in the above paragraphs. Let’s understand why winning trade misleads.
Why Profitable Trade Lies
Entrenching Poor Practices: By taking the impulsive trades and decision often misleads the brain and suggest that breaking rules is the way to profitable trader.
Disguises leverage: Rather than using the same lot sizing, you trade with 2/3x quantity of the standard lot sizing. However using these much quantity to trade in the market, can make your whole capital wiped out from the market in a single spike.
Develop Wrong Confidence: Most of the newcomer traders come with beginner luck in the market and the market often rewards them with profits before it starts showing it’s true cells. This behaviour of the market make them believe they know how trade in the markets. When the market start behaving in a true, they often end up wiping our their whole trading capital.
Induces Risk Blindness: A winning profitable account always hides the mistakes which needs to be improved. Because in the end money matters and you are making it by anyhow. But in the long run the market exposes you by your mistakes which leads to the massive drawdown of your trading account.
Ultimately these winning trades often reveals the traders truth that he/she was fortunate but they were not patient enough to make money from the markets.
Why Good Trades Can Sometimes Lose
Sometime a good method based trade may face some losing streaks because it’s the nature of the market instability and all. But on a count of 100 trade, a process based will remain profitable because the market also respects the discipline and a strong trading psychology.
How Good trade Face Loses
Win Rate Strategy: As i have discussed earlier too no strategy who is present and working in the markets has 1005 successful rate. Every strategy can make you suffer from losses it can be consecutive or 1-2 loss after the 2-3 win.
Sudden Movements: Although you can analyze the fundamental data of the market and plan the trade accordingly. But you can’t deal with the sudden spikes, this can be the manipulation or either distribution anything.
Market Disturbance: Sometimes the market may triggers your stop loss then starts the real move. Meanwhile it shows the immortal nature of the market.
How This Affects Trading Psychology
Profit or returns both the term activates the adrenaline rush and high release of dopamine which feels exciting and forces you to do more trading which leads to overtrading.
Overconfidence: When a trade ends in the winning side, it often creates the excitement, joy and overconfidence. Which lead to continuous trading.
Reduce Confident: After the continuous losing streaks, the traders start feeling under confident. It’s not only reduce the capital but it takes away the confidence of making the money from the markets.
Chasing Profits: Instead of waiting for the setup, traders trade in fomo, fear or out of boredom. Because one winning trade make you believe that by trading at the random levels or chasing any breakout or breakdown can give profits.
Avoid Discipline: When the luck starts favoring you, every trade end in your favors. Therefore it suggests your brain by skipping the discipline term, we can still make money.
This winning trade system often ignores discipline trading start acting to the market noises and disturbance.
How Traders Can Evaluate Their Trades
In order to analyse the trades, you need to separate outcome based and process based trade. Meanwhile it suggests the evaluation on the basis of the trading plan, rather than profit based.
Separate Every Trade
Good/Bad Win: The trades who follow all the trading rules and regulations set by you comes under the good win trade. In bad win where you skip all the rules trade at the any level of the market.
Good/Bad Loss: When every trades follow the same rules but still you got stopped out or the price triggers your stop loss. These trades are the good loss. Bad loss when trade with the risk management, stop loss, increased the lot sizing in the urge of big returns.
Trace Process
Rather than evaluating the one trade’s discipline, evaluates on the scale on 50-100 trade this will give much better understanding, where are you lacking, any rules refinement etc.
Discipline Rate: Rate the every trade’s discipline like which rule i broke today to rules i followed today. And this discipline should exceed more than or at least 90%.
Maximum Dip: Set the maximum daily loss limit, if you have exceeded that limit then you should stop trading for the day. Although it’s only protect your account but preserve your psychology too.
Prepare A Trading Journal
Journal which has the record of your every trade from entry to target price or stop loss. This tell you the rules which need to be followed before the trade entry and which setup you are gonna trade.
The Why: This cover why did you take the trade, it was the setup trade or just a trade with emotions driven.
Emotional Awareness: This includes did you involve any emotions while placing the any trade or it was just pure execution based on the process.
Final Conclusion
Everyone believe that winning trade is always a good trade and losing trades is always a bad trades. Trading success requires the right decision at the time of placing the trade.
Sometimes a winning is based on the emotional execution and losing trade based on pure driven execution.
In the long run of trading, good trades always develop consistency, confidence and discipline. And repeating the same process will keep you alive in trading.
In trading always aim for executing a good trade, then a winning trade would be the part of this process.
Check out my previous blog on Why Traders Should Focus On Process Over Results