Tuesday, October 30, 2012

Types of Trades

Today, I would like to talk about a topic many traders would shun; losing money. Do you hate losing money? Personally, I love being stopped out of losing trades fast so that I can move on to the next trade (not that I enjoy losing money though).

Losing money is part of any trading system or edge and can never be avoided.

First Question to Ask
Did you executed your trading system flawlessly?

If you are able to answer yes without much hesitation, don't even bother reviewing the trade since it is a good trade. Now what do i mean by a good trade? Let me explain by explaining all the types of trades you will make as a trader.

Good and Profitable Trades
- They are the ones that were executed flawlessly and gave a positive outcome, earning you money

Good but Non-Profitable Trades
- They are the ones that were executed flawlessly but resulted in a loss, typical of any trading system. 

Bad but Profitable Trades
- They are the ones that were executed wrongly (not in accordance to your trading system / rules) but gave a positive outcome. Of all the trades, this is the worst type of trades because it convinces the trader that it is okay to not follow your trading plan/ rules. After all, if you can do it once and ignore your rules, what are the chances of you doing it again and again?

Bad and Unprofitable Trades
- They are the ones that were executed poorly and as such resulted in the loss.  Such trades are better than the bad but profitable trades because they help to shape you to become a more disciplined trader. After all, who likes losing money?

The bottom line is......

Don't even bother taking a trade if you need to review why the trade was a good or a bad one when it stops you out
Here's an example of a good but non-profitable trade I took today

Question: Do you think I went to revisit why this trade was a loser?

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