August 10, 2013

Blanket Statements are for Losers

"Never trade with less than 2:1 reward-to-risk ratio"; "Whenever I hear people using 2:1 R-R, I laugh"; "Breakouts don't work because the market ranges 80% of the time"; "Only trade breakouts, because the big winners will put you on top"; etc.

People use blanket statements like this in books and on forums all time time.

What do they all have in common?

Firstly, they're usually stated confidently and insistently by people who haven't had a single profitable year in the market.

Secondly, they're the kind of things coming from struggling traders -- ones who like to talk down to you even though they're still chasing their own tails, in their eternal attempt to find the perfect no-loss trading system.

I'm sure I've been guilty of the above at some point on my journey to becoming a full-time forex trader, but one thing beginners really need to know is that none of these blanket statements are 100% correct. None.

If someone told me that from day one, I would've started trading profitably a lot earlier. Instead, I doubted my own ideas because I read statements like the ones above in online forums and poorly written forex e-books.

So to save you a few years of searching:

There's no secret key to winning trades any more than there's a secret key to finding true love. Just deal with what you've got (on every trade) and give yourself a chance to benefit from the big one when it comes -- that's all you can do.

A friend of mine started off trading for small profits, and his occasional loss would cost him more than two of his winning trades. Most people on the forums would look down on his style but he makes a good living doing that -- because his sheer winning percentage is high enough to keep him above water on a monthly and yearly basis. (I wouldn't recommend his style to beginners since the accuracy comes with experience, but it illustrates an important point about the error of a blanket statement like "always trade with high reward-to-risk ratios!")

In the end, you only need to find a way to let the bad ones hurt you less than the good ones could benefit you -- maybe not always per day, but at least per month, or per year -- whatever works for your style.

Be open to different trading ideas whether it's coming from someone else or from yourself. A lot of different methods work -- no two banks use exactly the same strategies either or we'd all be at a stand-still.

People talk about fading a failed breakout, or fading the big round numbers. Well, beginner traders need to keep an open mind... so fade those blanket statements.

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