Unpredictability and uncertainty are the two immortal terms of the market which confuses many traders, what to do. What many traders does is start behaving to the every movement of the market, by predicting the price or by chasing the price. However many traders searches for the perfect strategy with 100% win rate in the market. Because they think success demands a strategy with 100% win rate. Meanwhile there are some things which separates the new trader from pro traders.
Successful traders kows the nature of the market and they accept it with the stop loss and risk management. Instead of denying the unpredictability and uncertainty of the markets, they manage and trade accordingly to that.
Understanding Uncertainty in Trading
Let’s break down the term first “uncertainty” uncertainty covers which isn’t certain or fixed like anything can happen. Meanwhile let’s understand with the trading point of view. If you are trading in the market, what can happen to your trade. Either your trade get stopped out or your trade may hit the target price. That’s what uncertainty is in trading point of view. Sometimes your perfect trade may lose or your worse might perform better than good trade. This is the uncertainty in trading.
Uncertainty Factors In Trading
Sudden Event: This term refers to the any speech by the government official, war, unexpected manipulation etc. This can’t be controlled in the market instead you have to accept it and plan your trades accordingly.
Market Sentiments: The market sentiments covers the direction of the market. Which means in which direction the market is going to move. However it reflects the mood of the investor, where they want to see the market in bullish side or bearish side.
Economic Events: These type of events can easily manipulate the price on the same seconds as the economic results released. These event consists economic data release, unemployment ratio of the nation, inflation rate etc. Trading on these event days can be very dangerous because we don’t know on which side the data is going to come. And you profitable may end in the losing side or your losing position may the target price. Trading on these days is purely on the luck and gamble. These days doesn’t decide either you are a pro trader or not.
Big Players: When institutional players enters in the market, the price starts getting fluctuated. Because they want to move the price in their favor in order to make money. Because of this they generate the liquidity by initiating the fake move or inducement. So that the market can have enough liquidity to give them their target price.
Why Many Traders Struggle With Uncertainty
Traders strive with uncertainty because human mind is emotionally attached to the money. When a trader places a trade a human mind seeks a confirmation that this trade will ends in the profit. When it doesn’t happen then the traders starts overtrading and all just to get their capital breakeven. As i have discussed earlier in my blog aso this is the loop which end after blowing up your capital.
Over Analyzation: Many new comer traders often try to analysis the market from the every aspect so that they can make their trade win. However by doing this, it makes the analysis more complex than earlier instead of accepting the nature of the market.
Hate Of Being Wrong: Many new traders take the loss personally rather taking it as the component of the trading. Ultimately it leads to the further trades emotionally influenced.
Guarantee Of The Fixed Result: When someone’s trade doesn’t work according to their expectations and faces some loses. It shakes their confidence in their setup because they think this setup guarantee the expected results.
The Myth of Predicting the Market
Many novice traders believe that predicting the market brings success in trading. Meanwhile the markets are influenced by the many factors such as, economic events, any speech of the government official, any war is happening in the some parts of the world. That’s why it is a myth by predicting the market you can be successful in trading. But in reality nobody can’t predict the actually price in the market.
Why Predictions Goes Wrong
Global Impact: If anything is going on in the any part of the world then eventually it impacts the market. Because investors starts taking their funds out of the market’s which fluctuate the price.
Timing Conscious: In order to be successful in the market you need to be right at the 2 times. When buying a position and when selling the position. If anytimings goes wrong then ultimately it will reduce the long term returns from the market.
Trading Is a Game of Probabilities
Not only a trading itself but in the real world too there is 50-50% chances of something will happen or something will not. Let’s understand with the trading point of view, suppose that if you place a trade by following all your trading rules, executed on the high probability setup, entered with the high probability setup etc. But still there is 50% chance of that trade to end in profits and rest 50% chance of that trade ends in the loss. No setup can guarantee you of the 100% profits even the pro traders setup fails sometimes.
The Math Of Risk To Reward
Even the strategy with 50% win rate in the market can make you profitable trader in the market. But it relies on how much you win when you are in the winning trade and how much you lose when you are in the losing trade. Let’s say you ended the last trade in the profits but in the next trade you risked the whole profit in the urge of big profits, this mindset will keep you as the losing trader. Another scenario you risked 25% profit of the last trade. Now you need 4 losing trade to wipe out the last trade’s profit.
Each Trade Is New
Your last trade’s results should not impact the present trade like breaking any rule, trading at the random setup’s etc. Loses are mandatory in the market because it’s the nature of the market everyday you can’t win and everyday you can’t lose. However when you treat trading like a business the loses becomes the cost of business, instead of taking it personally, you start taking it as the part of the process.
The Count Of Big Numbers
Rather than judging your strategy on count of 5-10 trades, start counting on a scale of 100 trades. Because it will help you to find out your edge first then the rest of the trade out of 100 trades will let your edge play in the market. By the end of the 100 trades you will have the data how at what time in which session your edge plays out the best.
Practical Ways to Become Comfortable With Uncertainty
In order to becoming use to with the uncertainties of the market, is reminding your brain that see the uncertainty as the part of the process rather than seeing it as threat. Meanwhile you can reach at this stage by following some plans and rules of the trading.
Focus On What You Have: Instead of thinking about things you can’t control, focus on what you can control while placing the trade. Like execution should be followed by the trading rules, risk management should be there, standard lot sizing and all.
Accepting The Missing Trade: You can’t catch the every move of the market even it is on your setup. Because sometimes your risk management doesn’t allow, you won’t get desired entry signal to make the entry in the trade. Although it doesn’t happen most of the time but there is a some time when price takes your stop loss then moves. Rather than crying on the missing opportunities, learn to accept it and move on to the next trade.
Control The Position Sizing: If your trade makes you scare then either you risk is bigger than the previous trade or your trading with more lot sizing. Always risk the amount which protects your trading psychology and your trading account.
Defining The Loss: Pre defining the per trade loss will give you sense of freedom to think about the amount that you will lose in this trade if this ends in the red color.
Prepare the Journal: Document the every trade, it’s entry price, exit price, stop loss, which setup and etc. Conduct weekly or bi-weekly assessment of the trades which tells you the what you have done or which area needs improvisation.
Final Conclusion
Uncertainty is the immortal nature of market. Every trader deals with uncertainty in form of stop losses and risk management. No strategy, no indicator can eliminate this factor from the markets. Trading success doesn’t require to remove the uncertainty. But trading success requires learn how to deal and trade with the confidence.