The Difference Between Good And Bad TradesApr 05, 2023
What makes a good or bad trade in financial, or any markets at all?
Some Traders think that when they place a trade they do not see profit immediately they have made a bad trade. As soon as the red starts and the mist sets in, Traders think they've made an unstoppable mistake, but is that really true? Is it over once you have entered the market and it goes against you? This article describes why that isn't true and how there is a lot you can do to make a bad trade seem not so bad.
There are many reasons why a trade that went wrong was not specifically a bad trade and can be turned into a good trade. You will not be right 100% of the time, nobody will. Trading is a long term process because to be accurate you need to trade over a longer period of time. Fast wins and fast losses in a short period of time do not fully express the long timescale of Trading and certainly not investing. So you could take a trade that was equally as good as one that went right and no less reasonable, it's just because some of your trades will not zoom into profit immediately that you can get a false sense of getting things wrong.
You see, it's about how you manage your trading and your positions Individually over time. Trades that are 'losing' do not need to end as losers and can be turned into profitable trades so long as your approach is correct and you are liquidating the position at the correct time. By that, I mean using methods like we do at WillOfTheTrader academy like DCA (Dollar Cost Averaging) and hedging to mitigate loss. These methods enable you to not close a trade as soon as you believe that you've made a mistake, because often you haven't, its just the distribution of results across the vast amount of positions you've entered into the market over time.
So what is the most common approach?
Traders tend to set a stop loss at a certain % risk. That is the easiest way to determine PRE trade what you are looking to potentially gain and lose. The problem with this is that it's hard to determine precisely the risk of any trade so traders change their risk per trade or keep it consistent regardless of the chance of the trade ending successful being different. This, again, is inherently a long term process. The only way you can get accurate results is if you played this out over time continuously.
Traders often do not look for a long term process within this common approach. It's much shorter term and it ends quickly. Remember, there is no accurate way to test a strategy unless it is tested for a long period of time. If you had stop losses with a risk % of 2% per trade, 10 losses is 20% gone without a chance to turn any losers into winners. Using DCA and Hedging methods allows you to continuously take gains and mitigate the loss with those gains, not having to close out losers immediately.
So remember, its not all over once your trade goes against you. Don't be so fast to close out and assume that things are wrong, as that's often why people consistently lose money and cannot sustain Market Swings.
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