Does Trading Really Work?
What I want to talk about today is, does trading really work?
Because sometimes it feels that you’re going one step forward and then two steps back, doesn’t it?
Yesterday, Rosemarie shared in one of my private Facebook groups. She asked,
“How is everybody doing? I got out last Friday losing most of my gains, and yesterday I got stopped out of a loss during the same day and today I put on three trades, two long and one short, and they’re all in the red. Is everybody in the same boat or staying out of the market?”
What is going on here? Does what Rosemarie shared sound familiar? This is where sometimes it really feels that you’re not moving.
Let me show you what’s even worse.
This is where some traders then look at some charts and they look at these percentage movers and say, “Oh my gosh! Today there’s CARV that moved up all the way from $2 to $22.” These are these so-called penny stocks.
Here, you also have COHN and other stocks that were trading at $4 moving up. You see the percentages here making 300%, 137%. When you see this, you’re wondering, “Why can’t I do this,” right?
I mean, why do I feel like Rosemarie here? Asking herself “Does trading really work?”
You see, doing something like this with penny stocks it’s like winning the lottery. Have you ever heard of CARV before? They may have shot up, but then they came right back down.
This is what usually happens. What goes up must come down, especially when it has these parabolic moves.
2 Things Needed To Trade Successfully
So I want to share a little bit of what I have experience in all my years of trading.
You see, in order for trading to work, and to trade successfully, you must have two things.
1. A Solid Trading Strategy
The first thing that you need is a solid trading strategy. I’ve talked about this before.
What exactly do you need in a trading strategy?
What to trade
Well, first of all, a trading strategy needs to first tell you what to trade, right? I mean, what stock, what option, what binary option, or what future market, it doesn’t really matter.
When to enter
It also has to show you when exactly to enter a trade.
When to exit
Then we need to know when to exit a trade. When it comes to exiting you can either exit with a profit, I mean, this is why we are trading, or you’re exiting with a loss, right?
Both ways are possible here, and this is what a solid trading strategy does for you, it gives you this information.
Now, as you know, I personally like to use the PowerX Strategy. That is the strategy that I like to trade here, and this is exactly what strategy Rosemarie is trading.
2. You Must Have Confidence In Your Strategy
Now, the second thing that you need, based on my experience, is you need to have confidence in your strategy.
We talked about this before, if you don’t have the confidence, you start chasing shiny objects, you jump from one strategy to another, from one newsletter to another, or you buy more & more tools.
At least this is what happened to me in the beginning when I was lacking confidence. So confidence is absolutely important.
Now the key question here is, “How?”
People ask me all the time:
“How do you have so much confidence in your plan?”
Well here’s my answer: I know my numbers and I know what to expect.
How to know what to expect
You see, for example, how do I know what to expect? As I mentioned, I’m using the PoweX Strategy and I am using the PowerX Optimizer to find the best stocks and options to trade.
That is the software that I use every day I’m actually using it at night to find the best trades, and then I confirm them the next morning. This only takes me, what, 15-35 minutes a day.
When I run the software, I look for certain stocks and I look for stocks that give me at least a 60% return on my investment, per year. This means I’m expecting 5% per month.
Now, I’m always happy when I’m surprised in a positive way, but these are my minimum requirements.
I’m also expecting a 40% winning percentage. These are my requirements and yours might be different, but this is what exactly I’m expecting. A 40% winning percentage means 6 out of 10 trades are losing trades.
I also expect a profit factor of at least 3. Now, what does a profit factor of three mean? It means that for every dollar that I lose, I expect to make at least $3 in return.
So this is my ratio, and again, yours might be completely different, but this is what I’m looking for. So these are my expectations when trading the PowerX Strategy.
Does Trading Work? Here Are Real Results From My Trading Account
So let me show you some real results.
As some of you may know, I opened a small account with tastyworks and put $20,000 into the account because I wanted to see how quickly can I grow this account.
I have been trading with my trading plan, on this account, and I want to show you exactly what happened.
Let me show you the statistics.
These results are from June 17th, and as you see, go back to May 19th. I had 192 signals in total, and then ruled out a few stocks according to my plan.
41 were triggered, and 31 filled. So this means over the past four weeks I’ve taken 31 trades.
Now out of these 31 trades, 9 trades were still open, and I closed 22 trades.
Out of these 22 trades, I closed 6 with a profit and 16 with a loss.
Now, I’ve just covered with you what I expect, and 6 out of 22 trades is 27%. So right now, my winning percentage is 27%.
I expect a 40% winning percentage, right? So here, the strategy was underperforming.
This is very important to understand because when you are trading a strategy, and you’re expecting a winning percentage of 40%, it means that in the long run, based on my experience, a good number of trades to look at is 40 trades.
This is what you want to see after 40 trades. So here, as you can see, I only closed 22 trades, and it’s absolutely normal for every trading strategy to have times when they’re underperforming, or overperforming.
You see, when trading, you don’t have this straight line that goes up from the lower left to the upper right, it doesn’t work this way.
There will be dips, here & there, and you will see that sometimes it’s just going sideways, maybe even down, and then it takes off.
Let’s take a look at some more of my results. So here, June 17th, my account was definitely underperforming, but over the next few weeks, I expected it to overperform.
At this time, the account was underperforming, because the markets were nervous about what was going on with the virus.
Looking here at the S&P 500, from June 17th, we have been moving a little bit up and right here, markets were definitely nervous due to uncertainty with the rising number of new cases of Covid-19.
I mean, we had a spike in cases in Florida, Texas, Arizona, but then overall, it seemed that our economy was rebounding, so these were definitely tricky times to trade.
So this is why right here, it was underperforming, but let me also show you a little bit more, because, again, the winning percentage is only one of the important factors.
What I also expect is that I have a profit factor of 3 to 1.
As you can see, I was not quite there yet because you see the average losing trade is $200. This is very important to note here that I was keeping my losses small here.
Think about it, this is a $20,000 account. So $200 per losing trade is 1% and the average winning trade is $433.
So my loss after four weeks of trading is $600. I told you I’d give it to you straight, and even though I’m really good at trading, I wish I could tell you that I’m always winning, but after four weeks of trading here, I had a loss of $600 in a $20,000 account.
This loss however is only about 3%. That’s nothing, especially if you look at the results here and you know that the average winning trade is $433.
This means that one winning trade will get me close to break even, and with a few more winning trades, I’ll be back up.
I want to share something else with you.
In my company, Rockwell Trading, some of the team members are trading. One of the team members who are trading is Alex, who is responsible for all the tech support for the website, and all the backend stuff.
We had a conversation through Skype about the trades he was taking at this time. Alex said:
“I’m trading right now and I’m not doing well.”
And I said:
“Well, I’m not doing well either. Look at this. Check the stats, 22 losing trades, only 6 winning trades.”
Exactly what I have just shown you, to which Alex replied:
“Yes, I’m surprised you’re only down $600.”
I asked him:
“Why are you surprised? I’m keeping my losses small. This is the secret here, one winning trade will bring me back to break even.”
Alex had a realization and said:
“I’m surprised that I’m only down $155 a month, and two more winning trades, and I’ll have a decent profit.”
So you see, this I believe is the key. You have to keep your losses small.
Is It Possible To Make Money Trading?
So is it possible to make money trading?
I’ve been trading for a long time. I can’t remember exactly how long, but more than 20 years. I can give you my answer.
YES, it is absolutely possible to make money with trading, and there are a few things that you need to consider.
1. Trading Is A Marathon, Not A Sprint
Number one, trading is a marathon, not a sprint.
When you see these crazy claims about “how you can turn a thousand dollars into a million dollars,” or “never have a losing trade again,” or “make 1,000%,” run away!
I mean, here, I’m as real as it gets. I’m sharing my real results with you, from one of my actual accounts.
I have a total of 8 accounts. The results of this account are pretty typical of all the other accounts I’m trading on.
2. Stay Focused
Number two, is it possible to make money with trading? Yes. Stay focused. Don’t jump from one trading strategy to another one.
That is one of the big mistakes that I made at the beginning of my trading career.
I mean, this is where I started trading a strategy and then when it underperformed, as this one did, I jumped to the next trading strategy, and then I jumped to the next trading strategy.
3. Stay Disciplined
The third thing I believe is absolutely important for trading to work is to stay disciplined.
Let me tell you a story really quick.
So my kids are sailing, and so we go to regattas all over the country. A few years ago, we went to a regatta in New Orleans.
In the evening after the first day, one of the dads, Tony said:
“Hey, you know, what? Do you want to go to a casino and play, gamble a little bit?”
And I said: “Well, not much of a gambler, but sure, why not?”
Tony and I went to a casino and we decided to play blackjack. I think we had about $500 each and, here’s what happened.
Tony had a few losing hands, and after a while, his chip pile was down to half the money that he had. Now, I’m very conservative, as I’m really not much of a gambler, I barely know the rules of blackjack.
Well when Tony was down almost half of his money, decided for the next round he was all in. No more discipline. All in. Does that sound familiar?
What do you think happened? It was another losing hand and so we left the casino and Tony wasn’t so happy.
This is also what I see happening to traders. After a few losing trades, often they do something stupid. I also did this at the beginning of my trading career. At the beginning of my trading career I clearly said:
“You know what? After a few losing trades now let’s just increase the bet size and try to make back the money that I lost.”
Have you ever done it? Because if so, you know exactly what happens. So it is super important to stay disciplined.
How do you stay disciplined?
How do you stay focused and disciplined? This is where we go back to having confidence. And you see it’s a full circle.
And how do you have confidence? By knowing what to expect when you’re following your plan and by knowing your numbers.
Both of these are super important when building your confidence as a trader.
Has this been helpful to understand a little bit of what’s happening right now? So next time someone asks you, “Does trading really work?” I hope you’ll agree, that it definitely does 🙂
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