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STICK WITH THE ODDS IN YOUR FAVOR
If we had to condense professional trading down to its essence, we would probably come up with something like: “the ability to safely and consistently exploit favorable market odds, ensuring positive results over time”.
The Specter of “Missed Money”
One will rarely hear professional traders gloating too often about luck-related gains. They know that over time the “luck factor” will generally smooth itself out between good breaks and bad breaks, leaving behind the only component of any consequence: the inevitable crash that occur versus the favorable odds achieved by methodical implementation of a good trading plan. In truth, this is the only part of the trading experience that a professional trader really cares about. This is because those who see trading as long-term have only one real goal in mind: the construction and implementation of a system that produces dependable gains. Only gamblers are turned on by the rush of randomness. True professionals will reduce the unknowables at all cost.
Missed money refers to all of those extra trading profits that we feel we somehow could have nabbed but didn’t. Clearly there is a massive ocean of money changing hands each day in the markets, and unless we are particularly masochistic, we don’t waste a lot of time torturing ourselves about not grabbing it all. But how about the fact that the contract we’re trading now reaches our chosen target, requiring us to exit according to plan, then goes on to climb another 5 or 10 points by the end of the day
Oliver Velez and Greg Capra, the co-founders of Pristine.com, are found of saying, “Missed money is better than lost money.” Truly speaking, this is one of the best trading slogans ever invented. It can, of course, be abused. A trader can certainly use this adage to justify timidity exactly when boldness is required. However, this doesn’t change the fact that learning to make peace with missed money is an absolute prerequisite for any professional trading career. Any aspiring trader who hasn’t come to terms with this fact is an accident waiting to happen.
Discomfort is Better Than Agony
Inevitably I see a whole host of trades that I chose not to enter for one reason or another... It’s certainly far preferable to what I’d feel after recklessly entering everything that looks even remotely good. Some markets, perhaps, would reward such behavior, but eventually I’d go bust trading in that manner. I would have to take huge risks, remove my carefully constructed restraints and go venturing way outside of the plan that had made me dependable money up until that point. In a way, this is a great irony. The dogged effort to avoid missing that money, would all but guarantee that I made no money! At the very least, I certainly wouldn’t be a consistently profitable professional, somebody qualified to show others how to remain within the confines of a successful trading system.
And this is ultimately the great secret to this issue. In accepting the inevitability of missed money, we chose one mild form of pain on a regular basis, and prevent a far greater pain down the road. We recognize the fact that there will always be a degree of discomfort in trading. The question is, will it be the discomfort of restraining ourselves or the agony caused by our recklessness? There’s simply no getting around this crucial trade-off. And while the specifics of the trade-off may look a bit different in each individual case, the essence is always the same: We’re only looking for better odds of the targeted profit (the bunt) rather than the greater odds of the ‘going-for-broke’ home run each time.
All the SP BANKBOOK Trading Systems have target exits, thus ensuring a profit rather than waiting to see if the market turns, thereby canceling our targeted profits. Rather a bird in the hand…………
GOOD LUCK
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