A lot of people ask me for a simple trading trick that’ll make them just 10 points a day.
Of course, it’s dead easy to make 10 points in a day. I’m sure that most of us can count many, many days when we’ve made a lot more than that.
But it’s the idea that we can consistently make 10 points every day that is just unrealistic.
So, what are your expectations for your trades?
Every time I enter a trade, I want to make the full range of my profit target.
If that’s set at 100 points, I’m aiming for 100.
If it’s set at 20 points, I’m aiming for 20.
I wouldn’t consider entering a trade if I didn’t think it would win. (Okay, I admit that there are times when I have some doubts, or worry that the trade isn’t the best set-up, but the motivation is all about the win.)
And, if I don’t get that full profit, I’m disappointed. Even if I’ve escaped via a trialing stop with a small profit … it’s not the outcome I’m after.
The result is that I spend a lot of my time feeling disappointed and frustrated!
The reality of trading is that many of our trades will fail to make the grade. Even in a rock-solid, successful system, we’ll have to take a share of the losses.
If we didn’t lose some of the time, we wouldn’t get the opportunity to win – that’s the way probabilities work. You can’t have the possibility of winning without the possibility of not winning.
But if we have a better understanding of how much we’re trying make in each trade, we can have a better image of our true progress to profitability … and we should feel a lot happier with our trading.
Let’s look at a couple of examples …
Let’s say that I’m trading with a profit target of 10 pips, and a stop level of 20 pips. And my track record shows me winning 70% of my trades. So, 70% of the time, I’m winning 10 pips, and 30% of the time, I’m losing 20 pips.
If we take a snapshot of 100 trades, that means we can expect to make 700 pips, and lose 600 pips – meaning a gain of 100 pips.
So, 100 pips profit, in 100 trades … tells us that we’re only expecting to make 1 pip per trade.
Here’s another example …
This time, we’re trading with a profit target of 200 points, and stop distance of 100 points. Our win rate is 37%. So, out of 100 trades, we can expect to make 37 x 200 = 7,400 points; and to lose 63 x 100 = 6,300 points. So, our net gain on 100 trades would be + 1,100 points, giving us an average of 11 points per trade.
So, take a look at the trading you’re doing. How many points should you be making, on average, each trade?
It’s probably a lot less than you’d expect.
This kind of perspective helps us to appreciate the scale of the leap forward we make on any full winning trade … and that each losing trade isn’t quite the knock-back it can feel.
And if we feel good about our trading and our progress … it’s one of the best tricks to staying on the straight and narrow with your trading plan.
The outcome should be success achieving your goal AND a satisfying journey!