Trading vs. Gambling | Passing Up Perfectly Good Trades

[Brendan Egan]

How many times have you been sitting at your trading desk, sometimes after spending hours doing absolutely nothing but staring into the screen, and what you have been waiting for shows up on the chart but you don't click that "buy" button to enter a position?

If you've been trading for more than a few weeks, chances are this has happened to you at least once, and for some traders who have been trading for months or years it has happened dozens if not hundreds of times. I know I used to do it all the time--it would happen to me at least once a day at one point.

Here's what I used to go through during my trading week: Monday would come around and after a refreshing weekend of relaxing away from the markets I would have a positive attitude and be ready to trade. I would sit for a few hours in the morning and not really see much, then what I was waiting for would come around but I would talk myself out of that trade for one reason or another. Then I would sit there and watch what was a picture perfect trade go in my favor. Then I was pissed off, and the next mediocre looking trade that came along I would jump into, sometimes with larger position size than normal, and I would sit there and watch that trade go against me and I would usually hang on way longer than I should and let a trade I shouldn't be in in the first place turn into a good sized loser.

Tuesday would come and I would still be bitter about Monday, so I would let all the trades blow past me on Tuesday and I ended the day not even trading at all. At the end of the day I tried to justify this behavior by saying "Well, at least a big fat 0 on my profit/loss statement is better than a negative number like yesterday".

Wednesday would come around and I found myself in the same position as Monday, and I was overly aggressive now to have winning trades which just made me over trade and pick the wrong trades which lead to another negative day.

Thursday and Friday I decided I needed some time away from the markets to step back and analyze what I'm doing wrong so I wouldn't trade, and then the cycle begins again on Monday....

Sound somewhat familiar? It happens to nearly everyone at some point--most of the time in a similar manner to what I'm describing, sometimes less severe where you just pass up good trades here and there, but at some point every trader goes through this. So instead of focusing on the negative behaviors here, what can we do to solve this problem? Take my word for it--this is a cycle that will continue until you actually are determined to do something about it and the sooner you do that the better-- you'll end up not only saving yourself a ton of precious time but you will save yourself from blowing out your trading account. Here's 4 great tips and steps to take to help fix this problem:

1. Put probability on your side. Trading is very different from casual gambling because as traders we bring probability onto our side. If we are using a time tested trading method that works, we should have a success rate of around 60-75%. Every single time we deviate from our plan, we are increasing the odds of us losing money and not having a winning trade. And every time we pass up on a trade that is part of our methodology, there's a 75% chance that trade would have been a winner. So let's say we sit there and pass up 3 trades that we should have taken and we witness all 3 of these trades go in our favor even though we don't have a position then we work up the courage to take that 4th trade, there's nearly a 100% chance that 4th trade will be a losing trade due to the probability involved in trading. We talk more about this concept in the price action course because it is critical to understanding the probabilities involved in trading.
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2. A streak of losers just means you're that much closer to a winner. If you are actually following your methodology and analyzing the way you should, then if you have 10 losing trades in a row there's a HUGE chance the 11th trade will be a winning position. The chances and probability of following your method and having 10 losing trades in a row, for example, is super low but if it does happen then there's just that much more chance that your next trade actually will be a winner.
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3. I can't explain everything about actually taking good trades and having a good method in a blog post, which is precisely why I put together the Advanced Price Action Trading Course. The course focuses on providing you with a simple, time tested methodology and teaching you tips and tricks for actually spotting trades and then placing the trades and how to manage them. This is an invaluable resource and excellent tool to help combat this problem.
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4. Reach out for some help. Drop me an email here. I'll do my best to talk to you about your trading situation and give you pointers on the best route for your specific situation.

Overall we need to remove emotions from our trading to be profitable. We need to act robotic in our trading and only trade what we see, and not what we feel. We need to follow these steps, understand probability, and bring probability back onto our side if we want to be winning traders. Without probability on our side, we may as well go down to the casino and pull the lever on the slot machine.