For the sake of discussion I would like to ask the following question:
Does a winning trade always mean you were right and does a losing trade always mean you were wrong?
If you entered into a winning trade either randomly or by breaking your trading rules, or if the trade ended up working for you not because of the underlying premiss under which you entered into the position but instead ended up becoming a winning trade due to some other factors, was it really a winning trade?
On the other hand, if you have a trading system with a proven positive expectancy over the long term and ended up entering into a losing trade, but the trade was completely justified by the rules of your system, did you really lose?
Or is the only thing that matters the fact that you either made money or lost money? At the end of the day, is that what really determines if you were right or wrong?
If you have a system that is proven profitable just stick to it. Keep trading simple, please. I’m begging you.
I know that you have a lot of time here on babypips and appear to be an experienced trader. Please do not take my response the wrong way. I sometimes get frustrated with the way human pyschology overcomplicates trading. I’m almost tempted to call it a design flaw but…
Your question is very interesting since it could be unclear for most of newbie traders. In fact you`re right:even winning trade conducted without regard to the strategu rules is wrong, while each trade that fit strading system is right despite its results.
It happens because trading is about consistency: the result of one certain trade means nothing, but the results of a week or month are important. Each trader should be consistently profitable to become successful, so it is better to have small but consistent profits rather than to get accidental profit generated by random trade.
Another important point that when the trader makes profit by executing the trade without taking in account his trading rules, he gets the wrong feeling that these rules are useless and it would be better to trade without them (especially if the profit was huge, that may happen from time to time).
That is why it is better to lose small amounts of money using system that is profitable in general rather than make huge profit on a single trade and then lose the entire account trying to make such trade again.
In ordinary usage of the terms ‘right’ and ‘wrong’, absent a moral dimension, any winning trade is obviously right and any losing trade is obviously wrong. Of course, experienced traders understand that you are not using those terms in the ordinary sense. In that case, the answer depends on your trading system.
A mechanical system treats all trades as part of a larger set. The system has proven profitable, as long as the rules are strictly followed, so any deviation from those rules puts profitability at risk. In that sense, the outcome of any given trade is largely irrelevant, and the ‘rightness’ or ‘wrongness’ comes entirely from whether the rules that guarentee overall profitability have been followed.
However, a discretionary system sees every trade as unique, much like a fingerprint. While there are still rules that must normally be followed, the discretionary trader understands that blindly following those rules will lead to otherwise avoidable losses, and passing up winning trades. From that point of view, each trade must be judged as ‘right’ or ‘wrong’ in isolation, while the trader is judged by their overall profitability.
Great question, but also a really big one. I might probably need to come back to this but here are my first thoughts.
Winning is wrong if -
it is at the expense of excessive risk
it results from unjustified trader actions (decisions not based on TA/FA evidence)
it is delayed to the extent that better opportunities were missed
Tell yourself the truth. If you are winning you are RIGHT, if you are loosing you are WRONG. There is no whitewashing the process, once you accept your MISTAKES and learn from them you become a better trader.