You Can Win 80% Of The Time… And Still Lose Money

If there was one word I would use to describe the market so far this year, it would be…

Choppy.

Up and down… up and down… the market hanging on the latest news out of Ukraine or whether we will see a jump in the 10-year Treasury yield that day.

Market environments like this make it difficult to enact trading discipline.

It’s difficult to get a clear picture of where the market is headed. Do you go short? Stay long? During these times, many traders may feel like they NEED to be doing something in order to chase down more opportunities and higher gains.

But the reality is, sometimes, the best action to take is no action at all.

Overactivity Does Not Equal Productivity

Why get burned chasing the market when it really isn’t giving you anything to be confident about? When our trading discipline breaks down, so too do our trades.

The two worst things you can do in this volatile market environment are (1) chase trades you’re not fully confident in and (2) ignore your risk/reward profile.

Today, I want to focus on that second point and why trading discipline is so crucial to succeeding as a trader.

Let me show you what I mean. Let’s say you make five trades, and you win on four of them. Incredible!

Looking good! And an 80% win rate isn’t too shabby, is it? All right, let’s look at that one loser…

Result? Down $100.

So much for that win rate…

Considering the risk/reward profile of every trade is crucial! Even if you have an 80% win rate, you can still lose money.

Read that again…

Sure, you can make good trades the majority of the time, but if you ignore your risk/reward profile, your losers can tip the scales out of your favor.

Why do you think that is? Oftentimes, it comes down to poor risk management, or chasing down plays that risk way too much for not enough reward. Lack of trading discipline, even if only momentarily, can greatly affect your overall performance. It’s also why chasing a trade you’re not confident in can be so dangerous.

Even if 80% of your trades are winners, those handful of losers could negate all the gains you saw. You can’t make money if you’re making $0.50 on your good trades and losing $5 on your occasional bad trade.

You Have To Exercise Trading Discipline…

This trading methodology works well for our trading theme of keeping it simple. But no matter which rule you choose to trade by, you have to set rules in place and you have to follow them.

Like most things in life if done without discipline, the performance wanes over time.

These simple lessons — like trading discipline — are the most important things I can teach my students because they’re often overlooked, especially by inexperienced traders.

I drive home six steps that I think are fundamental to successful trading, and while however simple they may be, I need to stress their effectiveness.

I use and highlight these simple trading steps routinely in my weekly trading service, The Profit Machine, my coaching service where I trade alongside viewers LIVE.

I take pride in being a resource for my students, so I always open the floor to general questions or how I analyze potential trades, all with the goal of teaching lessons such as trading discipline, how to manage risk properly, and, yes, when it’s best not to trade.

Join us on our upcoming call tomorrow at 9 a.m. Eastern, and let’s continue to sharpen your axe with me as the grindstone. You’ll be happy you did…