You can’t win them all!
Late Tuesday night I spotted a potential setup forming on GBP/JPY. The setup did not look amazing, but it had a lot of points in its favor. So, I stayed up until 3:00 am my time to take the trade, I do not normally stay up late for trades, but I felt like taking this one. That is where the video below starts. I entered short on GBP/JPY at 169.57, with a target at 167.15, and a stop at 170.53.
After a lot of movement up and down, the trade pushed up and hit my stop loss…
… Does it bother me? No, not at all. I explain why it doesn’t bother me below, but first, check out the video:
Forex trading is not about winning
Despite what a lot of people think, Forex trading is not about being right a majority of the time. You can be wrong 60% of the time and still be profitable, you can even be wrong 80% of the time and still be profitable.
This year, my goal is to have an average risk to reward ratio of 1:3, but my bare minimum on any trade is 1:2. So, what do these numbers mean?
Well, lets say I take 100 trades this year all with a minimum ratio of 1:2. Overall on these trade I am right 60% of the time, and wrong 40% of the time. A winning trade earns me £2,000 and a losing trades costs me £1,000.
The numbers are all hypothetical and they do not reflect my true profit or loss per trade. I just chose some easy numbers for this example. My actual win rate should be around 65%-75% this year, based on data from previous years.
60 x £2,000 = £120,000
40 x £1,000 = £40,000
£120,000 – £40,000 = £80,000
So, if I was right 60% of the time, I would be quite profitable.
But what if I am wrong 60% of the time?
40 x £2,000 = £80,000
60 x £1,000 = £60,000
£80,000 – £60,000 = £20,000
So I would be profitable even though I am wrong the majority of the time. Obviously I would be much less profitable, but I would be profitable.
Am I expecting to lose 60% of all my trades this year? Definitely not, I expect to win 70% of my trades!
However, I do not feel an overwhelming need to be right, even if I am wrong 60% of the time I will be profitable this year. And that is with a 1:2 risk to reward ratio, which will be my minimum.
Don’t let losing trades get you down
Next time you lose a trade, remember that losing trades is normal, and you do not have to be right to be profitable. There are traders who fail 70% of their trades and who are still profitable.
Having a good strategy and doing good analysis certainly is a big part of trading. The more times you are right, the more profit you will make. In the example above it is better to earn £80,000 in one year than it is to earn £20,000.
However, do not get too worried if you fail trades. If your money and risk management is good, you can afford to lose most of your trades and still come out on top.
One of the most destructive desires for traders is the need to be right. You do not need to be right, you need to be profitable.
chris g
Thanks, good to know & thank UR Girlfriend, sleepin through it.
Nick
She would probably sleep through a hurricane. But she is great, even if I did wake her she wouldn’t be mad. My ex girlfriend would turn into a monster whenever I accidentally woke her while trading.
Don
Good video Nick.
I try to watch them when I can, but my wife moved us out to the country and I have satellite internet now (Hughs and I hate them) and the only time I get speed that I can watch is 2am to 7am est and I am usually trying to trade so that slows me down. But I learn a bunch so thanks
Don
Nick
Sorry to hear that your internet is bad. I couldn’t live without great internet. Not only for trading, but also for PC gaming and watching Netflix.
otto
Nick can you provide the links for drawing tools and the boundary lines for plotting support and resistance areas on my charts ?
Nick
The drawing tools are part of the recording software I use, they are not chart tools. They are not actually drawing on my charts, they are drawing over my entire desktop. The boundary lines for support and resistance are just parallel channels on the tradingview.com charting software.
Criss Cross
Thank you, Nick. I needed to hear this!
Nick
Glad it was helpful Criss.
Paul Ingram
Keep it up, Nick. I really appreciate seeing you post content. I don’t see it nearly as much as I would like, so I’m hoping you start posting analysis and trade tips more often.
Thanks!
Nick
I am going to try and post a lot more this year.
Ken
Hi Nick,
You must have nerves of steel! You quote average profit/Loss ratios of 60/40 and 40/60 being OK provided your risk/reward is a minimum of 1/2. However, should one experience a string of losses for a short time, your account could be wiped out. By then if you wish to continue to trade this PA system of yours, you would have to refund your account and take the risk of throwing good money after bad! Of course, money management is the answer in this scenario. However, who wants to play the game for pennies? Hmmmm!
I’ve been trading with £1 per pip stakes for decades now and consider myself successful as I have only lost modest amounts of cash on this interesting journey.
By the way, I very much like what you are doing.
Nick
I always worry about making these kinds if posts because it seems like people only skim read and miss important details. I never said my average win/loss ratios are 40/60 for this strategy. I actually went out of my way to say it wasn’t, just to make the point clear, yet there is still confusion. I said this in the article above, one statement was actually bolded:
“Am I expecting to lose 60% of all my trades this year? Definitely not!”
“The numbers are all hypothetical and they do not reflect my true profit or loss per trade. I just chose some easy numbers for this example.”
Those are not my actual profit and loss numbers with this strategy. The ratio I actually expect to have this year is 70% wins. I may not achieve that, only time can tell, but I have achieved it consistently for years.
Also, if a string of losses would cause somebody to wipe their account, they are trading wrong and have poor money management. If you trade properly it would take 50-60 losses to lose 50% of your account. Risking more than 1% per trade generally shouldn’t happen.
sunny
hi Nick,
By posting this , you gain more trust from your follower , including me :)
Ok about this trade, if I am not mistaken, is the sudden spike up of GBP/JPY was at the time that BOJ announcement related to the negative interest rate? If yes, what do you think about the fundamental effects the strategy you use?
Thanks for sharing Nick.
best Regards
Nick
I try not to look into why a trade failed. I learned this from a student of mine who has become a really great trader over the last two years. He says that trying to figure out why you failed a trade is counter productive, just accept that it failed and move on.
That being said, I am pretty sure the spike from that news release came after I was stopped out. I got stopped out on the first jump up.
I try to ignore news with my strategy. Most times news works out in my favour, sometimes it doesn’t, and when that’s the case I just eat the loss. Overall trading through news is profitable.
I do avoid some reports though.
– NFP (non-farm employment change)
– Interest rate announcements
– Speeches
That is pretty much it though.
robw
Hi Nick,
Thanks for the video. I started your advance course at the beginning of January and have learnt a huge amount. What I am most excited about is the fact that I saw saw this trade and pretty much did exactly what you did, using what I have learnt. I did place 2 targets, one in-between the support and resistance lines where there was previous activity which you mentioned and the second just about the support and resistance lines. I recognised the great risk reward ratio as well.
Yes I got stopped out like you did but I don’t really care about that (demo account), I am just chuffed with the fact that I seem too have actually learnt something. Thank for all the straight talking knowledge and content.
Rob
Jeff
Hi Nick
The video was most helpful, may i ask do you read news reports from Bloomberg etc ? and do you pay attention to fundamentals or do you purely just work from price action analysis? your logic for at least 2.1 reward seems solid. Can i ask what made you alter to this approach ?
Thanks
pom1166
Dear Nick,
Thank you so much, so much and so much for all your videos, you are a great teacher !
It help me a lot to study the Forex trading system, Before i found your video in you tube , I was mostly loose my trades.
I am now collecting money and will be apply for your advance course soon,
Thanks again and sorry for my poor English.
pom
richarddalder
Hey Nick!
Always looking at your daily analysis video, they are really good and you always learn something new from it.
So, i was watching this video and a question came up to my mind.
If for example a trading setup forms on friday and that market close, (leaving a nice trade setup) and then on monday when the market opens, it triggers the trade, do you usually take those type of trades? or those types of trades doesnt meet your criteria?
Thanks for the help Nick!
South Africa
You the best man!!