Trading is a profession and nothing less. Most professions such as medical, legal, psychological,pharmaceutical, technical, mechanical, engineering, etc., require several years of education, study and effort. Not to mention the money required for learning the necessary skills. Then it takes many more years of actual practice to develop the skills and gain the experience to become successful. It is ironic how many of these same professionals attempt to become successful traders without even the slightest knowledge of the markets or more importantly, money management principles.
This occurs because there are no barriers to entry in this business. If you want to enter this profession, you just need a few extra dollars to open an account and that is it. However, if you wanted to become a doctor or a lawyer or enter some other profession, you would have to pay for an education, study hard, take tests, and obtain a license, etc., before you can even have the opportunity to find a job or start your own practice. This same principle applies to going into business yourself. Even if you wanted to simply open up a party store or a pizza shop, you would have many barriers to entry. This is not true with the trading business,which is another reason so many people fail.
Many traders do not adopt a probabilistic perspective on the markets and their trading. They think in opposite terms. They want every trade taken to be a winner. Traders should think in terms of probabilities for every trade.For any given trade, we can never be certain about its outcome when we first put on the trade. It may turn out to be a winning trade or a losing trade. The outcome of every individual trade, therefore, is uncertain.
Your job as a trader is to find, execute, and manage high-quality trades. You need to be very clear on how you do this; if you are not, you will be subject to the vagaries of the market and the vagaries of your emotional state, both of which will change from day to day.
I will explain it with an Example how probability work in market
A trade setup, for example, may have an edge of 60 percent. This means that on average 6 out of 10 trades will be winners and four will lose money.
When putting on that trade, we never know whether this particular trade will result in one of the six wins or one of the four losses. We just can’t know that in advance. But if we trade this setup consistently, and make, say, 100 trades over time, then our edge should prevail and we will have 60 winning trades and 40 losing trades. If the trade setup has a large win when it does succeed and a comparatively small loss when it doesn’t, we will have a positive expectancy and a net profitable setup.
Therefore, we want to take that trade each time it sets up according to its criteria. We want to be on right side of the law of large numbers.
When traders are focused on whether this trade will be a winner or a loser (i.e., the trade outcome), they are not ficusing on Process but the outcome.
We can never know whether any given trade will be a winner or a loser. We can never know its outcome. When our focus is on the trade’s outcome and we want it to be a winner, we are thinking unrealistically and our actions are likely to be erratic.