Nothing to lose

I hear this a lot in sports “I’ve got nothing to lose….”

But it does work. It is obvious in tennis, a sport I watch whenever I can. A game, for example, that is closely matched but the score, not reflecting this, has one player up a couple of sets. Often the opponent with “nothing to lose” at this point turns the match around.

This is a mindset that I use in trading but in a different way to our tennis player. Let me explain:

If I were to use the sporting analogy in trading, that is, I’m on the ropes and nothing to lose, it would be the way of the gambler. No planned consideration from the outset of probability.

The participant in our tennis analogy starts out risk averse but then with “nothing to lose” relaxes and wins low probability shots. The opponent that is two sets up, looking for the final set to win the match, goes the other way only taking high (predictable) probability shots.

Unlike our tennis player friend, the expert trader has a planned “nothing to lose” attitude from the outset. The (retail) trader does not have to return every ball. We can wait to take the high (obvious) probability trade when we know our opponent is wrong footed. When we do take the low probability trades we do it (staying with the analogy) at a crucial point in the game where the reward is many times the risk.

In other words: “I can only lose a relatively small portion of my funds with each trade. With low probability trades my wins are a few times greater than any potential loss. On high probability trades I’m selective with my entries.”

With this in mind, and with lots and lots of practise, I can be properly confident and relaxed, over the longer run, because I manage probability, … nothing to lose.

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