Trading is a game of PROBABILITIES - Huge mindset shift

#1
What's good traders.

I recently had a huge shift in mindset that I wanted to share with you which I personally feel is a huge sticking point for a lot of traders.

I came into trading being a very Type 'A' personality person - aggressive, competitive, very persistent with a winning mindset.

What I realized soon is this type of 'winning' mindset is great and very essential when you start your own Business/ Entrepreneurship, but NOT for trading

Whenever I made a losing trade or a string of losing trades, I would doubt myself and my strategy. I would think something is wrong with my system and I need to further improve and get better. I would sought of new courses, content and material trying to find the 'answers' and figure out what went wrong and would usually end of up making changes to my existing strategy or completely changing my strategy

This is what causes people to change strategies so often and they never end up mastering and truly refining one strategy. They feel that taking losses if a sign that something is wrong with their strategy and they need to change it.

But that cannot be further from the truth, the truth is

Trading is a game of PROBABILITIES

A lot of you'll might have heard this before, but it was only recently that I truly implemented this into my mindset.

The truth of the matter is Trading is the same thing as Gambling, because NOBODY knows where the market is going (Except for big banks and Institutions), nobody on the retail side truly knows what the market is going to do next. We can only make an educated guess based on our strategy.

However when you are gambling, you have to gamble like the Casino - with the ODDS in your favor.

If anybody has ever been to a Casino before, all of the slot machines/games in the Casino are designed with the ODDS in the favor of the Casino.

I don't know what exactly the odds are, but lets say the casino has a win rate of 80%.

That means from a 100 games, there will be 20 lucky people who make money and 80 who LOSE money, keeping the casino in a net profit.

So no matter what happens, the casino simply has to STICK TO ITS SYSTEM, because it will ALWAYS be in a net profit.


Applying this to trading, you have to play the game like a casino with the ODDS in your favour.

What are the ODDS in trading?

1-Your win rate
2-Your r/r ratio

If you have a 50% win rate and only take trades of 2:1 and above, I don't care what anybody says or if you have a string of losses, you will be a winner at the end of the day

Over a series of 100 trades, you will be in a net profit (as long as you strictly follow the system)

Even if you have a string of 3 losses, 4 losses it does not matter. Because you will always be a net winner in the grand picture

Most people will not able to implement this mindset because they simply cannot be disciplined enough to take these losses. They feel losses are bad and an indication that something is wrong with their strategy.

But the truth is losses are ESSENTIAL for your probabilities to play out.

What we do as traders, not a lot of people can do this in the world.

You have to be a cold blooded trader, to take losses and yet be disciplined and STICK TO YOUR SYSTEM.

Almost like a serial killer slashing the throat of his victim, cutting her body into small pieces and disposing it off, with NO EMOTIONS whatsoever

Let me know about your experiences and views about this,

Have a great day
 

SarangSood

Well-Known Member
#2
Studies show that traders avoid risk when winning and seek risk when losing. This is the exact opposite of what needs to done to sustain in the markets. We must reprogram ourselves and create habits that are unnatural until they become our second nature.

With the absence of buyers and sellers in casinos, it turns out to be game of pure probabilities. But with the involvement of smart money in the markets, one if tries to FOLLOW it can be successful and make a living out of it.

I think the most important part is not the Win rate, but what actions you take when you are in a winning and losing trade. Even if you have a 70% win rate, the 30% can eat all the profits up and more. So it's important to win big and lose small even if you have a win rate of say 30%. That's why you have correctly pointed out the 2:1 r/r ratio. But for example an option buyer can have a very good almost unbelievable r/r ratio of a trade. But still it's very tough for them to make money consistently. Whenever i take a trade where i have a good r/r ratio generally the market goes the opposite because then it would become very easy for anyone to make money.
 
#4
Studies show that traders avoid risk when winning and seek risk when losing. This is the exact opposite of what needs to done to sustain in the markets. We must reprogram ourselves and create habits that are unnatural until they become our second nature.

With the absence of buyers and sellers in casinos, it turns out to be game of pure probabilities. But with the involvement of smart money in the markets, one if tries to FOLLOW it can be successful and make a living out of it.

I think the most important part is not the Win rate, but what actions you take when you are in a winning and losing trade. Even if you have a 70% win rate, the 30% can eat all the profits up and more. So it's important to win big and lose small even if you have a win rate of say 30%. That's why you have correctly pointed out the 2:1 r/r ratio. But for example an option buyer can have a very good almost unbelievable r/r ratio of a trade. But still it's very tough for them to make money consistently. Whenever i take a trade where i have a good r/r ratio generally the market goes the opposite because then it would become very easy for anyone to make money.
That’s right, winning always puts people in a situation to take random actions and as the markets are constantly changing, these actions might prove to be unfavorable.
 

AJK

Well-Known Member
#5
What's good traders.

I recently had a huge shift in mindset that I wanted to share with you which I personally feel is a huge sticking point for a lot of traders.

I came into trading being a very Type 'A' personality person - aggressive, competitive, very persistent with a winning mindset.

What I realized soon is this type of 'winning' mindset is great and very essential when you start your own Business/ Entrepreneurship, but NOT for trading

Whenever I made a losing trade or a string of losing trades, I would doubt myself and my strategy. I would think something is wrong with my system and I need to further improve and get better. I would sought of new courses, content and material trying to find the 'answers' and figure out what went wrong and would usually end of up making changes to my existing strategy or completely changing my strategy

This is what causes people to change strategies so often and they never end up mastering and truly refining one strategy. They feel that taking losses if a sign that something is wrong with their strategy and they need to change it.

But that cannot be further from the truth, the truth is

Trading is a game of PROBABILITIES

A lot of you'll might have heard this before, but it was only recently that I truly implemented this into my mindset.

The truth of the matter is Trading is the same thing as Gambling, because NOBODY knows where the market is going (Except for big banks and Institutions), nobody on the retail side truly knows what the market is going to do next. We can only make an educated guess based on our strategy.

However when you are gambling, you have to gamble like the Casino - with the ODDS in your favor.

If anybody has ever been to a Casino before, all of the slot machines/games in the Casino are designed with the ODDS in the favor of the Casino.

I don't know what exactly the odds are, but lets say the casino has a win rate of 80%.

That means from a 100 games, there will be 20 lucky people who make money and 80 who LOSE money, keeping the casino in a net profit.

So no matter what happens, the casino simply has to STICK TO ITS SYSTEM, because it will ALWAYS be in a net profit.


Applying this to trading, you have to play the game like a casino with the ODDS in your favour.

What are the ODDS in trading?

1-Your win rate
2-Your r/r ratio

If you have a 50% win rate and only take trades of 2:1 and above, I don't care what anybody says or if you have a string of losses, you will be a winner at the end of the day

Over a series of 100 trades, you will be in a net profit (as long as you strictly follow the system)

Even if you have a string of 3 losses, 4 losses it does not matter. Because you will always be a net winner in the grand picture

Most people will not able to implement this mindset because they simply cannot be disciplined enough to take these losses. They feel losses are bad and an indication that something is wrong with their strategy.

But the truth is losses are ESSENTIAL for your probabilities to play out.

What we do as traders, not a lot of people can do this in the world.

You have to be a cold blooded trader, to take losses and yet be disciplined and STICK TO YOUR SYSTEM.

Almost like a serial killer slashing the throat of his victim, cutting her body into small pieces and disposing it off, with NO EMOTIONS whatsoever

Let me know about your experiences and views about this,

Have a great day
From my exp, i would add that a system would only work only if there is no news or strong trend in the indices. if there is, then the stock is always buyable/sellable until the news/trend cools down.
 
#6
Forex itself is well-known for its volatility, the price movements are very fluctuate and hence mindset of a trader has to be very patience during such fluctuating market.
 

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