Gabrielle W

Follow me on Instagram @TheChartWhisperers

February 21st, 2020

Are you a Trader or a Gambler?

To be a successful trader, you must emulate a business model. This includes risk, capital management, and following trends and patterns. Your focus must be on being profitable, not fun and excitement. Winners never risk more, even if they have a hunch of being right. Losers "go all in" when they feel they will be right. How much capital risked per trade is more important than what stock is entered and when. 

What is the Gamblers Fallacy?

Let's say you have 50/50 odds of winning or losing a trade. If you win 8 times in a row, what is the chance you will win on the next trade? Pretty slim, right? In reality, the odds are still the same, 50/50. Each trade is unique.

“My last four trades were wrong, so probability is high that I’ll be right on this one.”

This is the Gambler’s Fallacy. If you rely on your feelings and ignore the Gambler’s Fallacy, you could end up broke. If you risk only 1% of your total capital per trade, you will rarely have to deal with a draw down of more than 10%-20%. This gives you an edge to stay in the game and be successful long term.

 

Accounts do not go back up as fast as they come down

 

Need help mitigating risk? Click here.