+17.75 Points – The Trading Week in Review
This week certainly didn't get off to a roaring start but in the end it turned out to be quite a good one overall and offered some excellent trading opportunities. Coming off a long weekend there's often less market volume on Tuesday so there really wasn't a big surprise when things were slow early. Still, I'll admit I was a bit more optimistic for a stronger start after already seeing a slower market on Friday last week but with a little bit of patience things certainly improved and there were great trades to be had throughout the week.
The Elusive 90% Win Rate
Before I get into the major takeaway from the results I thought I would quickly touch on the win percentage this week. As you can see in the video I took 10 trades with 9 wins and 1 loss, so a 90% win rate overall. As you'll see looking through my prior recaps and various Student Updates, that's a bit unusual. I don't aim for a win rate that high and it's certainly not necessary to be highly profitable.
Some people do aim for 90% wins or even higher as they fear taking losses and are essentially looking for the ever-elusive Holy Grail trading system. They do this in most cases by risking far more on their trades than they are taking in profit and in many cases it's unsustainable. Plus, when your losses are four, five or even more times bigger than your wins just imagine the emotions that occur when you have a few losses and now have to slowly crawl out of the hole they've created with one tiny win at a time. And believe me, even if you win 90% of the time there will be a point when you string a few losses together!
I generally aim for at least 2:1 reward to risk from my trades, so I like my average wins to be at least twice as big as the average losses. In a case like this even if I'm basically just winning half the time as if flipping a coin I will still make sizeable profit. A selective trader can have a better win rate than that, of course, but it's nice to know there's not a lot of pressure to have to win all the time when I trade.
There's very little doubt in my mind that having a trading approach that requires an extremely high win rate isn't very sustainable over the long term for most traders. Why put yourself in that kind of high pressure and emotional situation if you don't have to? If you've got a solid reward to risk ratio with wins that are substantially bigger than losses and you are winning more often than you lose then you'll have everything needed to do very, very well for yourself as a trader.
Thoughts on the Losing Day
As you can see in the trading breakdown from the video each day offered some comparable opportunity with the exception of Thursday. Thursday was a difficult day with a lot of chop and few clear directional moves. I found a couple decent trades that fit my plan but in the end I wasn't able to realize an overall profit in the couple hours that I traded. I don't have losing days very often any more after so many years in the markets but they do still happen from time to time.
What you might find interesting about Thursday though is that I consider it a GREAT TRADING DAY! Sound a bit crazy? Well, there's method to the madness.
I've found after years of trading that it's a lot less about results and far more about execution. What I mean by this is that my focus is less on how much profit I've made in a day or how much of a loss I've taken and more on how well I executed my trading plan. On Thursday I had an overall loss but I took good trades that followed my rules each time so as far as I'm concerned, that's a day well traded regardless of the short-term result!
A hugely profitable day where a trader takes some stupid trades and lucked out with big winners isn't something to be proud of. The other side of that is that there's no shame in taking a loss on a day if you followed your plan and took good trades that fit your rules.
As traders we focus on the probabilities of specific trading outcomes and having a profitable edge. To let that edge play out we need to take positive expectancy trades that are within our defined rules over and over again. Sometimes with small samples of a few trades the outcome works in our favor and we have some profit on the day and sometimes we just run into a little bit of bad luck and take a few losses in a row through no fault of our own.
The key to being a trader though is knowing that if you are disciplined in following your plan and are patient waiting for your trading setups to occur that you'll be consistently profitable over many weeks, months, and years. The outcome of a single trade or even a single day doesn't matter much if you stuck to your plan.
So when I look back to evaluate my performance on the week it's less about those three solid winning days, the one losing one, or even the great overall result. I ask myself if I traded within my rules and if I didn't do that each day then I look at what I need to do differently the following week to address those inconsistencies.
This week I was very happy with the way I executed trades each day, I used objective price action and market movement to make decisions rather than emotions, and I stayed within my plan. That's a winning week for me and those actions were rewarded with some nice profits to top the week off as well!
- Strike While The Iron is Hot - March 1, 2021
- The Path to Becoming a Full Time Trader - February 22, 2021
- Looking to 2021 and Beyond - January 20, 2021
