High Probability Winning Trade

Probability - The Basics!

Probability is simply how likely something is to happen. Whenever we are unsure about the outcome, we can only talk about the probability of certain outcome. Its like flipping a coin which has two outcomes - heads or tails. In case of trading the probable two outcomes are - profit or loss.

Probability in Trading -

What differentiates a professional trader from occasional, part time, novice trader is - Thinking in probability. Professional trader knows and thinks of every trade as probability. This is one of the lesser known trading secrets and a very critical trading psychology to accept the probability.

Despite the best of your skills and strategy -

• Normally 40% to 60% is the probability of a winning trade
• Normally 40% to 60% is the probability of a loosing trade

Well, so by now after reading this far, you have already assumed trading to be a zero sum game. "You win few trades, you loose few trades, you take nothing home." Most ex-traders whose trading career ended poorly after being broken multiple times in the market will quote this famous saying.

Secret of sustainability and profitability

• We can be successful with 40% of our trades and make lots of money if we manage our trades correctly.
• We can be successful with 80% of our trades and still loose lots of money if we manage our trades poorly.

Probability and Us

As we have learned so far in the market, our probability of being successful is 40% to 60% however this also means we will also be unsuccessful 40% to 60% of times. We like being right. We hate being wrong. Successful trade is "right" Loosing trade is "wrong". Every loosing trade is like a failure to us, our brain tells us we are "no good", we are "looser" and in the end we stop being independent trader as we can't do it.

If you were thinking in probability, you would think of every trade's outcome in probability. winning or loosing is probable outcome and not something to be associated with right or wrong.

What's more important is being profitable than being right.

Look at the chart of BullishMomentum's top performing stocks chart. there are two breakouts in the above chart, one failed wasting time and money, while another tripled the money invested. 

There was no way to know the outcome before taking the trade. As a professional trader, loosing the first breakout trade was not wrong, just a probability. We never removed the stock from our list or hated it for giving us loss. 

When we spotted the next breakout, again we took the trade as a probable trade, no hard feeling no revenge or no stress of earlier trade's outcome

Now the secret of being profitable is also in the chart - 

• Let your winning trades run, trail them, don't close them just because of your past experience (again think in probabilities).
• Cut your loosing trades short with the help of stop loss which we discussed in our last post.

That will be all friends! 

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