are losers. They think that it is impossible to make money when most of
your trades are losers. They think that a master trader should win most,
maybe nearly all, of their trades. In fact, I doubt if any of the top ten traders
in the world win on most of their trades.
Trading profits generally follow the 80/20 Principle, or the Pareto Principle.
It states that 80 percent of your profits will come from 20 percent of
your trades. While this may not literally be true, the theory holds. Most of
your profits will come from a small minority of your trades.
This can be psychologically difficult. You may go months without really
seeing a big-profit trade. We are only trading five major pairs so we do not
have the luxury of a diversified portfolio. That means that we can easily go
months of little winners and little losers.
Naturally, there will come a time when we see several or more losing
trades in a row. If you follow my directions in this book then none of these
will be big losers. Each one will be trivial. But the cumulative effect of this
string of paper cuts will begin to wear on your emotions. You may become
frustrated or bored with the action or lack of action. You may begin to
doubt the value of the method, or worse, the value of yourself as a trader.
Both concepts will lead to further losses as you break your discipline.
Perhaps you will stop trading altogether.
The point is that a series of losing trades, even small losers, or a losing
streak can break you psychologically. Chapter 9 will cover this in more
detail, but it is important to bring it up here.
One solution to psychological stress is to boost the number of winning
trades. The potential for losing streaks decreases and the positive
reinforcement that comes from having a winning streak increases. Even
having the occasional small winner can create a much more positive emotional
and psychological state of mind and thus enhance the profitability of
the trader through greater discipline.
Adding a smattering of winning trades can create a better mind-set to
make money. It will give the positive feedback that will help to create the
discipline to be consistent and persistent in the face of a losing streak.
Why? Because the losing streak will be reduced or limited by the addition
of some small winning trades.
Source: PSYCHOLOGICAL PROFITS
