Why Professional Traders Probably Lose More Than You Do
+430,000 on a 50k account. Is it possible?
There is a common misconception that pro traders win most of the time. For sure there are many traders out there who are incredibly accurate, with phenomenal win loss ratios of 75% or more but there are many who make substantial + 6 figure incomes with win ratios of 50% or even less. For some of you this may not make sense at all and I can understand your doubt but understand this, professional traders are not about win/loss records they are about gains! Trading is not a league like Hockey or Football where you receive credit for your win vs losses or your trading record. You are credited for one thing and that is profit! Below are 3 small reasons professional probably lose more than you do but ultimately make serious profits.
Pros know its not about winning and losing as much as it is about risk and reward. Professionals are less concerned with their win/loss ratio as they are about their profit ratio. In order to taste the sweet you must make yourself vulnerable for the sour. Most professionals will seek a good 3-1 profit to loss ratio pr trade, meaning they are willing to give up 1 in risk for 3 in reward. With this type of aggressive ratio you can lose 3 out of every 4 trades and break even! Of course this is just a benchmark because many times when a trade is entered the dynamics change and adjustments to profit and loss targets need to be made but you get the point. Many amateurs will struggle with the profit factor as its common for many traders early in their careers to take small wins and allow losers to grow larger. Even though most know better the mental psychology boost from a winning trade, even if its only a couple of bucks, feels amazing but its actually a very poor habit to develop. For more info about that topic you can reference this post Run Winner Run.
Professionals shrug loss– There is no doubt that if you play this game you will have to pay and by pay I mean you will have to inherit a certain amount of risk and accept that as part of the territory. Trading is no different than many performance based careers in the fact that at some point, despite your best efforts, your ideas and analysis will not work out. There are too many variables in the market place to expect perfection. Understanding that losses taken are not personal or a reflection of your intelligence level but rather a product of probability will help you accept them more and in turn move on from them.
Professionals do not get conservative– I don’t mean by this statement that professional traders are fearless and crazy. I mean that many traders who start out their day with some really great wins begin to trade “conservative” from the standpoint of not wanting to lose. Now, there is nothing wrong with dialing it down after a stellar morning or capping yourself for a the day if you have had tremendous profits, after all rewarding yourself is important. However, when professionals see high probability set ups, no matter when they are, they take them, period. Passing on tier 1 set ups just because you have nailed a few winners right out of the gate is another very bad habit to develop. In our line of work we have an incredible amount of flexibility but market opportunity is not flexible. Opportunities often show up out of nowhere and you may not see one as good as you are seeing. Passing on those opportunities with only hinder your development
The only analytic that matters to your trading business is your profit. Your profit is exactly what you are as a trader. It may not reflect your true capabilities but it is the reality of the situation. To taste the sweetest of victories and to be a part of life defining trades you need to be in the trades to start with. You can not worry about how impressive your winning ratio is if you cant make enough to pay your cable bill.
This is why I think it is invaluable to be a part of a real trading community. Perhaps the greatest benefit of a trading community is to see first hand how professional traders go through the day, how they find set ups, how they manage risk and how they view opportunity. These are things that many traders feel they can learn from a book or DVD. I’m not saying these items can not help you but I am saying that real world , live experience is a far better learning tool, always has been. For those looking to transition to the next level. Take a free 14 trial to our live trade room and learn these fundamentals first hand. Click here for details.
Doug
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