Slow Trader

Tag: positive traders equation

  • Trade without ego

    Eckhart Tolle’s excellent book ‘a new earth’ explains ego beautifully. His spoken version – where Eckhart is also the narrator – is the best.

    To trade without ego is a necessary but difficult goal; to do so, of course, is to trade without emotion. Loss is part of the trading game and the successful, professional trader manages loss with the same detachment as she manages wins. Without emotion.

    Don’t get me wrong, the unexpected ‘grand’ win will come along, so allow ourselves a small celebration. However, the professional trader manages each trade with a (egoless) positive traders equation in mind, an approach that will never have the need for commiseration.

    To achieve a positive traders equation – an equation that includes risk, reward and, the often forgotten about, probability – is everything. Fear, greed and overconfidence are all parts of the ego. And, ego messes up our ability to recognise probability.

    However, with understanding, determination and practise, as in all our endeavours, we can largely eliminate many of the damaging characteristics of the ego. To do so, certainly in trading, we need to train ourselves to be aware of these emotions and manage them correctly. Eckhart says that to manage ego we simply need to be aware of it and be in the present – that is, be in the now.

    Taking a trade, for example, based on making up ‘lost ground’ is trading based on the past; or more accurately, based on the ego. It doesn’t work!

  • The most important thing is…

    60% probability of success is the best we can expect from a trade. Even if we think it’s a cert.

    If we look at a trade and say, ‘yeah, I think that will definitely work,’ then the probability is still, at best, 60% that it will happen as we want it to happen.

    On the other hand, if we look at a trade and say, ‘yeah, I think there is a chance of that working,’ then it’s a 40% probability.

    In other words, the best we can expect is between 60% to 40% of being right in any one trade.

    Therefore, our reward needs to be at least twice our risk in a 40% probability trade and at least equal to our risk for a 60% probability trade. Each of these make a positive traders equation.

    Striving for trades that give a positive traders equation is the way to make money over a series of trades.

    Achieving a positive traders equation is the most important thing to grasp, and do, as a trader.