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Can you lose a lot of trades and still be a successful trader?

Daksh Murkute | | |

I have been trading in the financial markets for quite some time now and I have also been able to help lots of beginners get better at trading.

 

One very common thing that my students would tell me is that they just need to win a lot in order to become a successful traders and let me tell you that winning more is not really necessary.

 

So, if winning more doesn’t necessarily make one a successful trader, then what does? What should traders focus on? You’ll find all the answers in this blog post.

 

Read the blog post till the end as I’ll not just tell you why winning more doesn’t mean more success and also, what else is important for successful trading.

Contents

 

 

Winning more might just not be enough

 

Winning more might just not be enough

 

We as humans have been ingrained with this belief system that we need to win in everything we do and if we don’t, then we are going to be left behind.

 

I mean, we see competition everywhere and people trying to win each and every time, be it in sports, awards, etc.

 

I’m sure that as you started out in trading, you would’ve read everywhere that winning a lot is the only thing that matters in trading.

 

But you know what, in trading at least, winning more is not necessarily important. Yes, winning is important in trading but you don’t really need to win each and every time if you want to be a successful trader.

 

‘What? Daksh are you serious? If I don’t win then I’ll lose and if I lose then I’ll lose money. How can you say I don’t need to win each and every time in trading?”

 

You might have that going on in your head but just hear me out and I’ll explain everything with proper examples.

 

Say that there are two traders, Tom and Sam. Both of them trade their own strategies and both have their own performances.

 

Whenever Tom wins a trade, he earns $100 and whenever he loses, he loses $100. And whenever Sam wins a trade, he earns $150 and whenever he loses, he loses $100.

 

Now, in trading, even if traders win half of the total trades they take, then it is considered to be a great feat. This means that if you take 100 trades then if you win 50 trades out of that, then you are doing something good.

 

If Tom wins 50 trades out of the 100 trades that he takes, then he is just going to be breakeven.

Winning trades x Money made per winning trade = 50 x $100 = $5,000

Losing trades x Money lost per losing trade = 50 x $100 = $5,000

Net PnL = $5,000 - $5,000 = 0 Breakeven 

 

But, on the other hand, if Sam wins 50 trades out of 100, then he is going to have a gross profit of $2,500.

Winning trades x Money made per winning trade = 50 x $150 = $7,500

Losing trades x Money lost per losing trade = 50 x $100 = $5,000

Net PnL = $7,500 - $5,000 = $2,500

 

Now even if they win 75 trades out of the 100 trades they take, then still Sam would have earned more with $8,750 while Tom would have $5,000.

Sam:

Net PnL = (Winning trades x Money made per winning trade) – (Losing trades x Money lost per losing trade)

= (75 x $150) – (25 x $100)

= $11,250 - $2,500

= $8,750

 

Tom:

Net PnL = (Winning trades x Money made per winning trade) – (Losing trades x Money lost per losing trade)

= (75 x $100) – (25 x $100)

= $7,500 - $2,500

= $5,000

 

If you already have some experience in trading then you would’ve already understood what I’m going to talk about in this blog post just by reading the title.

 

But for those that are just starting out and trying to understand things you need to know this very important thing, you don’t really need to win a lot to make big money.

 

So, if winning more trades isn’t entirely necessary, then what else matters? What’s the other thing that traders need to focus on? I’ll tell you that now.

 

 

What else is important for successful trading?

 

What else is important for successful trading?

 

If you followed the example I gave above, then you would’ve understood that winning is fine, but what also matters is how much you make when you win.

 

Again, I’m not saying that winning isn’t important, but it is just not the only important thing and you shouldn’t put all your focus on getting a higher win rate.

 

There’s something known as the risk to reward ratio and this is one thing that deserves equal focus too.

 

The risk to reward ratio is nothing but how much money you earn each time the trade goes in your favor and how much you would lose if the trade goes against you.

 

If you have a high risk to reward ratio, then a low win rate won’t be a problem at all. But, if you have a low risk to reward ratio, then a low win rate will mean that you end up with less money at the end.

 

Read the example I gave above again and you’ll now understand exactly what I mean to say.

 

Not many traders get themselves to understand this simple thing and when they do, they would’ve already lost time and money chasing a high win rate when they had to equally focus on the risk to reward ratio.

 

 

What do you think?

Just wanted to do a quick blog post on this topic as I felt that it is very important and I just needed to address it.

 

I want to know what you think about this. Do you prefer a high win rate or a high risk to reward ratio? What is it that works for you?

 

Don’t forget to share this blog post with others and let them also learn this simple yet very important thing in trading.

 

Feel free to ask me absolutely anything in the comments section below and I’ll get back to you at the earliest I can.

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