How to win bigger and more often

My six-year-old son has just taken up karate.

And, he likes to tell me, as he’s kicking me repeatedly in the shins, that you don’t need to be bigger or taller to win.

While I don’t enjoy having dents hammered into my tibia by his size 13 Startrites, I admire his tenacity. And, within limits, he’s right. You can beat a taller and bigger opponent, as long as you’re smarter and faster than he is.

So, when there’s a “perceived wisdom” about what we can and can’t win from the markets, it’s always worth questioning that wisdom.

We may be the “little guys” out there in the big markets, but if we’re agile, defensive and tenacious, we can win more often and win bigger.

But first, lets look at the case against (I’ve made it often enough myself) …

The “perceived wisdom” that we don’t argue with

I feel that I go on like a broken record about risk reward ratios and success rates.

I tell traders that you can either win bigger OR you can win more often.

You can’t do both.

If you push for greater profit targets on your trades, your success rate will inevitably dip.

If you want to win more often, you’re going to have to accept more modest wins.

It’s a fact of life.

Neither mean that your long-term profitability will be greater or lesser. Most trading strategies have a “sweet spot” of how much to go for, around which they’ll deliver the best profits.

Those of you who follow the Time-Shift Trader strategy will be very aware of these. Although it’s profitable across all profit targets – some offer better returns than others.

Successful trading is about finding that sweet spot – and about working out whether or not the success rate it gives you is one you’re comfortable with.

For me, a strategy which delivers incredible returns but has a low success rate (i.e. perhaps you only win 1 in 8 trades, but when you do you win 10 times your risk) just doesn’t suit my psyche. I don’t like the drawdowns, and I don’t like the stomaching all those losses.

So, that’s why you can’t have your cake and eat it.

Either you can win big OR you can win often.

Right?

Well, yes … but that’s no reason that we shouldn’t push a bit.

If we’re dogged and persistent enough, kicking at the shins of the markets … perhaps we can win bigger and win more often.

Here’s how …

1. How to win more often

Reducing your profit target is not the only way to win more often. The other way is to cut out some of our losing trades.

The way we do this is by identifying conditions where a loss is more likely, and cutting those trades out of our system.

Many traders try to do this by “getting a feel for the market”, and it’s true that over years and years of trading, you’ll learn to spot the trades that are on shakier ground.

However, we don’t want to wait for years and years of experience (and years and years of losing trades). Instead, we want a short-cut to cutting out losing trades.

The solution is a good trading journal.

Make notes about why trades lost or won. Perhaps the market jumped down when a piece of news came out … perhaps we were trading against the trend … perhaps the market was overbought when we bought in …

Over time (I’m talking weeks and months here – you don’t have to wait years), you’ll see patterns emerging in your records, and you’ll see clues about which trades you should be avoiding.

If keeping a trading journal is new to you, I strongly recommend that you check out the free Trader’s Bulletin resource. This is a downloadable journal that you can use to track your trades, and is available on our website here.

2. How to win bigger

There are a lot of clever ways that we can push the maximum profits out of our trades. And, as spreadbetting platforms get more and more user-friendly, a lot of these methods are becoming automated.

That means that we can push our profits, without having to sit at our screens all day.

I’ve been talking about partial profit-taking and trailing stops a fair bit recently, and I’m currently putting together a report for Trader’s Bulletin readers that will pull together all the information you need on this.

By taking advantage of these tools, it’s a great way to boost your winnings, without taking any extra risk.

Lots more coming up on this …

Related posts:

Follow this “trading wisdom” at your peril How to leave the party gracefully