When you take a trade, what do you really want to happen?
Of course there's an obvious answer: Money.
But it's actually much harder than that.
If we say we want money, we need to know exactly how we want that money. Do we want money on this trade right now or do we want money in our trading account five years from now?
Because that's where it gets tricky.
If you listen to trend-followers, they'll tell you that your wins need to be much bigger than your losses.
If you listen to investing gurus, they'll also tell you that your wins need to be much bigger than your losses.
The problem is: if our wins are much bigger than our losses, we won't win very much!
With big wins and small losses, we'll only win about 40% of the time--which means that the trade we just took five minutes ago probably won't work out.
How do we feel about that? How do we feel about that long-term?
If we could win this trade today, would we prefer it even if it meant making less money overall ten years from now?
Hold that thought while I go on a small tangent.
I'm always fascinated when physically debilitated athletes (read: American football players) are asked if they regret playing a sport that ended up hurting them later in life.
I'm fascinated because almost every single one of them answers, "No." Almost every one says they don't regret playing the sport that maimed them.
Really? You don't regret it? You don't regret not being able to get out of bed in the morning by yourself? You don't regret all those surgeries that now leave you constantly in pain? You would really trade having vibrant, pain-free existence for the rest of your life for some victories two decades ago? Really?
While I can't know what's truly in their heart, I tend to call "BS" on that. There's no way I would trade a past memory for a difficult existence now. Memories are a long time ago and don't help me get to the grocery story today. I want today to be great. A trophy twenty years ago doesn't amount to a hill of beans.
Which brings us back to trading. It's great when the research says we'll make more money long-term if we can suffer through a bunch of losses in the near-term. But we're still taking that bunch of losses right now! Who wants to take those losses?
What if, instead, I got to win all the time? What if nine days out of ten I get to take trades that are successful? Is that a better life? Is that more rewarding?
We have a choice between those two things, and it's a hugely important decision. We can win more or we can potentially make more money.
Personally, I would prefer an extremely high win percentage. I would prefer to watch winning trades almost all the time. But every trading system I've ever looked at is more profitable when the winning percentage is lower than I'd like.
That's why, to date, I've chosen to try to make more money and take more losing trades. I'm not thrilled about it.
Because of that, I'm going to continue to investigate ways to have the best of both worlds: more winning and the same amount of money. But until I find the answer, the battle still rages.
More money or more winning? Which one do you want?
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