To Positively Expect to Win!

To all that are currently trading or just contemplating trading, there is a term that you absolutely must learn and understand it’s meaning and importance in order to be a successful trader.  The term I speak of is called positive expectancy!

So what is positive expectancy?

Positive expectancy is defined as how much money, on average, we can expect to make for every dollar we risk.

From my experience positive expectancy is a concept that is little understood by the majority of people who are planning to, or are actually trading.  This is very unfortunate, as it is a HUGE contributor and the difference between winning and losing in the market whether you trade a mechanical strategy or are a discretionary trader.

So much focus is put on how many winning trades or how many winners in a row a trader gets.  Some of you may already be on a list from other trading services that report this way in their emails.  Therefore, making money is equated with the accuracy of their trading. The belief is that if you win more often than you lose then you’ll be ahead.

That’s it…Duh…WIN MORE OFTEN…it’s the secret to making money….

Well, no, not quite.  Unfortunately the majority of people focus solely on trying to be right, they believe that success comes with being right more often than you are wrong. I suppose this begs the question, why is this the case?

I think it is only natural for people to want to be right.  I recently wrote a blog post on the subject with a great quote from Ayn Rand, “Am I right? An animal cannot conceive of such a question. Man cannot escape it…”

So, we are programmed to want to be right from a very early age.  But being right in trading is really not that important, what is important is figuring out the positive expectancy of your trading system/plan and then following it to the letter, knowing full well that if you just execute flawlessly, you will win, and in some cases win BIG over time.

No one can predict the future, but trading a system that has a healthy positive expectancy is as close to a guarantee of success as we are ever going to get.

If you want to know more about this concept, there is an excellent article on the subject at the following link:  http://www.stator-afm.com/positive-expectancy.html

May today be a profitable day…for all of us.

John