Video length: 00:14:21
Trading is all about exits.
Nah — trading is all about entries.
Trade with a minimum of 2:1 risk reward ratio
Nah -you’ll never make money if you don’t let your stops be bigger than your profits — pigs get slaughtered.
If you want to make money trading follow your system rules.
Nah — rules are meant to be broken — they are just guidelines.
Spend an hour on the internet researching trading advice and you can easily conclude that this is a schizophrenic business and that no one has a clue as to what they are saying.
Trading advice may seem contradictory on the surface, but actually, it is not. It’s simply a matter of what trading model people choose to follow.
As I’ve noted many times before there are really only two ways to trade — the lottery model and the insurance model. The lottery model is the traditional approach that looks for 2:1 or greater win ratio, has very few winners but makes sure that they are large enough to pay for the losers.
The insurance model, on the other hand, does the exact opposite, It tries to make almost every trade a winner and avoid losers as much as possible, but when it does get hit the loss is much larger than the wins. Just like the insurance business, it counts on winners (i.e. premium payments) to offset the rare losers.
Once you begin to view trading advice through the prism of these two models it makes much more sense. If you are following the lottery model and every potential trade could be a huge winner while the risk is generally small — then, of course, you should follow the rules of your system and take every single trade. Discipline is paramount.
On the other hand, if you are trading the insurance way then passing up a single trade means almost nothing — in fact, it may be hugely advantageous to do so, since you may miss a big loser which is the same thing as banking many winners. Discipline is actually idiotic and discretion is the key to success.
