How do you judge a trade you just made? For most traders, if the trade worked in their favor and they made money then it was a good trade. If it really went in their favor then it was a REALLY good trade. But if the trade failed and they lost a little, it was a bad trade. If they experienced a rug pull and lost a lot of money, then it was a horrible trade.
Sound about right? Ok then, we’re done! I’m kidding of course.
I used to judge my trades like this all the time. I’d pat myself on the back for every green trade and convince myself I was an idiot for everything that cost me money. Then I realized I was thinking about this the wrong way.
I came to realize that what I thought were some of my best trades (again, because they made me the most money) were my worst! They were horrible!
Why? How can a trade that made me money be horrible?
They were nothing more than LUCK. And while a lucky trade here or there is nice and puts a little green in your account, in the end those trades will cost you if you don’t recognize them for what they are. Lucky trades teach you bad habits and bad habits can be hard to break. They lure you into thinking that you can make that same trade and get the same results.
So, how do I judge one of my trades? How do I decide if a trade was good or bad? I ask myself these two questions about every trade:
1: Was it an A+ Set-Up?
2: Did I follow all my rules while trading it?
If the answer is YES and YES, then it was good trade, regardless of whether my P&L is green or red. Think about that for a moment… NOTHING works all the time. There are times when a stock sets up perfectly, you nail the entry but then it fails and you lose money. I argue that is not a bad trade. That’s a good trade that just didn’t work. Losing trades are a fact of life for a Day Trader. The more you trade the more it will happen! That’s just math and how the odds work. Get used to it and learn how to lose.
Let’s look at a few examples from this week:
As I discussed in my last blog, one of the top five things that helped me take my trading to the next level is CONSISTENTCY. A big part of this is only trading an A+ Set-Up and taking that set-up EVERY time I see it. That’s how a trader becomes consistently profitable imho. Too many just throw darts and that’s THE very reason they aren’t profitable and will continue to spin their wheels. Green day, red day, slightly green day, BIG red day…
I was asked the other day if I thought someone’s trade was a good idea or not. This question came after the trade was executed and the stock was already well above the entry, so everyone assumed I was going to say yes. The stock was up so it must have been good! However, the honest answer was I never would have taken the trade. It wasn’t a miss for me even though the stock was up A LOT. Why wasn’t it a miss for me? Simple, it wasn’t one of my A+ set-ups. It wasn’t something that I would regularly trade. It wasn’t something that I thought was consistently repeatable for ME. For the trader who took the trade and made some nice money, I offered the same advice. IF that trade was something that he would trade every time he saw the pattern set-up then it was a fantastic trade. If he threw a dart and got lucky then not so much. Again, green trade ≠ good trade. That's the "not equal" sign.
Think about this next time you see a trade you feel like you missed out on. Would you have taken the trade if you saw it set-up in real time? Are you sure? You have no idea what Level2 and T&S looked like at the time. Would that trade have been luck or something consistently repeatable? I see traders lamenting all the time about the trades they feel like they missed. Be honest with yourself, would you really have taken that trade? And if you took that trade would you have been trading one of YOUR A+ Set-Ups and following all of YOUR rules?
So please give this some thought and relate it to our Inflection Points Part Deux webinar. If you missed it, you can watch it HERE. As you saw and heard, Mike and I don’t always agree 100% on every specific trade. Neither should you! YOU must decide which trades and inflection points work for you and your trading personality. Then, trade all of those EVERY TIME you see them set up. You can’t pick and choose. If you do, you will lose. You’ll take the 2 trades that fail and miss the one that runs 200% in an hour. Why? Because that’s what the market does and the way Day Trading works. We have no control over that. We can only control our own actions.
Final thought: Whenever we enter a trade, we have NO IDEA what the outcome will be. The stock is going to up, down or sideways. That’s all we know. Day Trading is all about finding the stocks setting up with the potential to move NOW. Finding those Inflection Points on the right stocks. Keep in mind, that’s not even the hardest part. The hardest part is the actual execution of the trade. Getting up the nerve to push the buy button at just the right time and then managing the trade. Then repeat that process over and over and over again consistently…
Questions? Comments? Reach out and/or leave a comment below.