A decent trade should yield you money, right?
Not necessarily so.
Am I crazy?
So why am I saying this?
Am I not in the business to be in the green?
Of course I am, so let’s delve a little deeper.
As is slowly becoming clear to you, Mrs. Market is a schizophrenic. Her behaviour is mostly looney, and more often that not, she traverses an unexpected trajectory.
In the business of trading, there lie before you a set of circumstances, and your trading decisions are based upon these.
Thus, you outline your trade.
You plan the entry.
You plan the exit.
You define the reward : risk ratio.
You draw up a trade management plan, as outlined by your system. You preplan your response to all possible movements of Mrs. Market.
Can you do more?
Can you predict Mrs. Market’s future behaviour?
You have an idea about what she might do, based upon past behaviour, but does that make her future path certain?
So that’s it, you enter a trade offering a high reward : risk ratio, based upon information from the past and a probabilistic idea about the future. A high reward : risk means that if there is a payout, it will be high in comparison to the loss you might bear if the trade goes against you. Something like 2 : 1 (possible profit : possible loss), or at least more than 1 : 1.
So what’s going to make your trade decent?
Just stick to your systematic plan, and you’ll have traded well.
Notice, no talk of any money here.
We’ve only spoken of sticking to our system-outlined trading plan.
We are not focusing on money. We are focusing on trading well.
Money is a side-effect to decent trading.
Trade decently, do the right thing, and money will follow as a side-effect, seen over the long run.
If your trade-management plan says you are cutting the trade below point X, and if point X is pierced by Mrs. M as she moves against you, well, the right thing to do would be to cut the trade.
So what if the trade didn’t yield you money?
It was a trade well executed, AS PER YOUR SYSTEM-OUTLINED TRADING PLAN.
What would have made this trade an indecent one would be if you hadn’t cut the trade below point X, irrespective of where Mrs. M went after that.
Why would the trade then be “bad”?
Because you didn’t follow your system’s advice.
You second-guessed yourself.
That means that you don’t have faith in your trade-management abilities, and / or that you succumbed to your emotions. You begun to hope that Mrs. M would start to move your way after piercing point X during her move against your trade direction.
If you did follow your system, you actually didn’t let any hope enter the equation.
You had faith in your system, and did not second-guess yourself.
Such faith in one’s system is absolutely essential, and you’ll realize that as you start to scale up in trade-size.
Let’s look at the other part of your trade-management plan.
Let’s say that you decided that if Mrs. M moved in your directon, then you would stay in the trade till you saw the scrip giving at least one sign that it was stagnating. Only then would you book profits, upon such a signal from Mrs. M.
Assume then, that after entry there’s a spike in your direction, and you are in the money.
What do you do now?
Do you get greedy, forget about your trade-management plan, and book the trade? Would such a money-yielding trade be considered decent?
Firstly, you got greedy.
Then, you forgot about your system-outlined trading plan.
So what if you made money?
Sticking to your system’s advice would have given you the chance to make more, perhaps much more.
It is difficult enough to pinpoint a scrip which is about to explode.
Then, when you land such a scrip, the last thing that you want to be doing to yourself is nipping the explosion in the bud.
You nipped potential profits, even if you took a portion home.
Very, very indecent.
There you have it, people.
Use your common-sense, and, trade decently.