24 / 05 / 23

Take what the market gives. Pay what the market asks.

What do I mean by this? Take what the market gives and not what you want from the market.

When we are in a trade and the trade goes in our expected direction, we want to quickly book and realize the profits.

Why do we behave like this?

  • We are afraid of giving up paper profits

  • We are afraid of profitable trade turning into a breakeven or loss-making trade.

  • We want to feel good by realizing the profit

What does this behaviour of taking profits early ensure?

  • Small profits.

  • Deny big winners.

  • optimizing our behaviour to chase accuracy.

In the game of trading or investing, the only way to survive and thrive is to ensure that we have BIG WINNERS AND SMALL LOSERS. Only this will ensure that your system has positive expectancy.

Take what the market gives: Ride the winners and maximize the gains from winning trades. Of course, there will be many trades that will return to breakeven or turn into loss-making trade. This doesn't matter. We want BIG WINNERS and this is possible only when we allow the smaller ones to turn into BIG WINNERS.

Now let's tackle the second statement: Pay what the market asks. Not what you want to pay to the market.

When the trade goes in the opposite direction and hits our stop loss or exit criteria, most traders try to lower the stop loss. They don't want to realize the paper loss.

Why do we behave like this?

  • We are trying to avoid loss because loss hurts

  • We don't want to accept that we were wrong with the trade

  • We believe that if we lower the stop loss level or if we give more time, the trade will turnaround and become profitable again.

What does this behaviour of delaying taking a loss ensure?

  • BIG losses

  • optimizing our behaviour to chase accuracy.

  • Money is locked in losing trade (opportunity cost )

When the stop loss is hit or when your trading system gives an exit, pay what the market is asking you to pay. The moment we lower our stop loss is the moment where we are optimizing for maximizing loss : BIG LOSS.

Always remember that in this game, BIG WINNERS and SMALL LOSSES is all that matters.

Take what the market gives. Pay what the market asks.