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Are you a breakeven trader ?

If so you are probably thinking that you are nearly “there” and one more push should see you join the ranks of consistently profitable traders.

I was in the same position many many years ago. I just needed a little bit more consistency and I would be there. I would have periods where I was just red hot and virtually every trade I put on was a winner – finally I had cracked it. Then a few unfortunate losers, badly judged trades and I was back to breakeven or thereabouts.

This is the storyline that most traders follow. We learn the basic skills apply them to the markets and are often pleasantly surprised by the strings of winning trades that we encounter. But then just as quickly those profits disappear through one or more unfortunate mistakes or errors or other unexpected external factors causing us to “give back” those profits.

VERY FRUSTRATING – if only we could get a little bit more consistency in our trading we will have it cracked !

Well that may indeed be the case. However what is much more likely is that we are drawing possibly incorrect conclusions from the way that essentially random outcomes unfold in real life.

We know that if we spin a fair coin enough times it will come up approximately heads 50% of the time and approximately tales 50% of the time. We also know that we can have strings of spins where the coin comes up just heads or just tails purely by random chance. We also accept and understand that over a period of time these fortuitous strings of winners or losers will correct themselves and results will tend towards 50% heads and 50% tails.

Most of us when we are trading tend to attribute winning trades to our mastering of the trading technique  ie “doing it right”  whilst attributing losing trades to some external events or us “doing it wrong”.

The reality is trading is not a precise art or skill and it is actually quiet possible to do everything “right” and still have a losing trade or do everything “wrong” and still have a winning trade.

In other words it may be wrong to assume that when you have had a winning trade that you have done something right and vice versa for losing trades.

The sad reality for most traders that are breaking even is that they are in fact just getting random outcomes in the same way as you would if spinning a coin. It certainly does not feel that way but the results bear this out

The mistake we then make is to assume that  if we can analyse and then repeat what we did on the winning trades  and eliminate or reduce the ”mistakes” we made on the losing trades then we would be home and dry.

This would be the case if we had indeed acquired a genuine skill or edge.

However if you look at the coin spinning example what is much more likely is that when we have a string of five winning trades it actually has very little to do with our skill and very much more to do with how a  random sequence of outcomes just happens to be unfolding.

In other words if we spun a coin and it came up several heads in a row would we say “now I have discovered a way to spin a coin and for it always to come up heads” if only I could now master this spinning technique I could make a fortune in the coin spinning business.

Sure it MIGHT be that you really have acquired a “knack” but far more likely is  that you are ascribing more significance to the outcomes than they warrant.

This is sort of the basis for the null hypothesis assumption in statistics – ie that any kind of difference or significance you see in a data set(winning v losing trades or heads v tails)  is due to chance. Until this can be refuted in statistical terms it is best to assume the hypothesis is true. Ie it is just chance.

Ie unless we can prove in the statistical sense that we do have an edge it is wise to assume that we in fact do not.

Breaking even in trading is not a refutation of the null hypothesis it is in fact a confirmation.

Another way to look at it is to say if you are a breakeven trader that is pretty well what you would expect to get if you were simply sticking a pin in the FT (or rolling a dice) to decide on your trades.

Ouch that hurts ! ….. but…….. it is very often the case.

The people that go on to make money are those that can accept that fact and move on to acquire the skill necessary to acquire a genuine provable edge and finally are able to refute that null hypothesis.

There are more aspects to trading success than most are initially aware of and I know it was certainly the case with me that I spent nearly 10 years being “nearly” there whereas in fact I was actually nowhere near “there” and I had much much more still to have to learn and understand.

I had reached the limits of my ability to improve on my own, under my own steam, and needed external help. I reached out for help to a proven successful trader and that in truth was when my trading took off.

It is certainly true that you do not have to be born with an innate skill to become successful in trading but by the same token if any of us have been trading for a few years and are still just breaking even (or worse) we would be wise to accept that there is probably additional information about this business out there that we need to be acquire and incorporate into our own trading.

I am reminded of that old quotation for the definition of insanity “insanity is continuing to do the same thing but expecting a different outcome to somehow occur”. If it is not working for you then you have to change it.

Trading courses such as the pro-trader course seeks to give you a full and complete picture of trading and provide all the missing pieces to the jigsaw puzzle. Quite understandably novice traders, do not, and cannot, be expected to realise that they are trying to assemble a winning strategy from an incomplete box of pieces.

Achieving breakeven results (or worse) over a protracted period of time is strong evidence that you are missing some vital information.

 

 

 

 

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