Better to be Profitable than Right

If people are right, how come they often go wrong? This is a question affecting Forex traders but also affecting people as a whole. Because a trader tends to trade on his wits and battle with his temperament, he may feel a need to defend a position because he doesn’t want to be proven wrong.

This is in fact a very human situation. There is a tendency to tie in being right or wrong with our identity, (who we are), rather than our beliefs and values, knowledge and behaviour (things increasingly more flexible). So if we are proved wrong, we take it as a personal rather than a professional slight upon us.   Apply this attitude to the world of trading and you can really be asking for trouble.

If you look at an analysis of winning and losing trades you can now clearly see why traders lose money despite bring right more than half the time. They lose more money on their losing trades than they make on their winning trades.

Let’s use a sample of a very popular trade EUR/USD to illustrate this.Our analysis shows that EUR/USD trades were profitable 59% of the time, but trader losses on EUR/USD were an average of 127 pips while profits were only an average of 65 pips. While traders were correct more than half the time, their losses on losing trades  way outshone (if that is the correct expression) their gains on winning trades.

The old saying in the advertising industry “if it ain’t broke, don’t fix it” applies partially here.  The successful trader does need to respond but to do so in line with his carefully worked out plans and not his emotions. Everyone wants to be right, holding on to losses looking for a turnaround that may never come so that we will be proved to be right.”. Conversely , we call a halt to profitable trades for fear of losing the gains we’ve already made. Doing that is a good way to lose money. So in conclusion, yes when trading, it is more important to be profitable than to be right. Cut your losses and run with the profits. Cash in the bank is more important than pride.

About Mohit Tater

Mohit is the co-founder and editor of Entrepreneurship Life, a place where entrepreneurs, start-ups, and business owners can find wide ranging information, advice, resources, and tools for starting, running, and growing their businesses.

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