most common reasons for wins or losses

New title: Difference between good and bad trades.



post em up, please. no wrong answers. I'll start:

The good:

followed system/rules

The bad:

Exit trade early.
Exit trade late.
Enter trade early.
Enter trade late.
User/computer error (typed in wrong exit/entry price, power failure, loss of internet)
Overleveraged
Emotion
Traded against the trend

Ya know...this is a decent question.

My take on losses is that they CAN be caused by all the things below, however, I would venture to say that often times we try to "justify" losses by looking for a specific reason than what may be a more obvious one...and that's just that the trade went against you.

In other words, it's entirely possible that in conjunction with the reasons listed below, sometimes the trade just doesn't go as planned, and you have to exit...right?

I mean, I think of it this way: If I were to put my trade rules into a machine and let the machine trade for me, I would expect there to be losses. So, that means that you could enter perfectly, and follow your plan and yet end up with a loss. That's just part of the game for me. You will invariable NOT win them all.

So, I'd like to be clear that when a loss occurs for me, a good majority of the time is that my system just failed on the trade. It's not that the other reasons don't occur, but I believe I'm at a stage now where those types of mistakes are minimized and part of that is because I'm more of an automatic system trader - that is that I experiment with systems that have definitive rules that I can program into a system and then tweak those systems to give me a profitable return. I do this, because it comes close to eliminating ALL of the "errors" listed below.

I'd like to point out that, many times, losses occured even if the system is being followed perfectly. That's just how it is in this business. Losses are a part of the system.

As you both stated, very true. EVERY (winning) system has losses, they are unavoidable, and to be expected. I am just interested in what YOU (and me) do to cause losses, incurred by deviating from your system or general trading rules which i have mentioned. I in fact do considering a losing trade, in which you followed ALL rules of your system to be a GOOD trade. Likewise a winning trade in which you may have jumped in without planning out properly, can be labeled as a bad trade.

one common mistake we make as traders is to equate a loss to doing something wrong, and equate a win with doing something right. this is a terrible habit. there is a lot of randomness to this game, and you cant go analyzing yourself to death everytime you have a loss. you also cant go patting yourself on the back everytime you have a win. it takes quite a long string of trades to be able to really see how your method is working, so analyzing yoursefl on a trade by trade basis can be way overkill on the emotional front.

Loss - When one incurs losses, one starts to doubt his system and change systems, again and again.
Win - choose a suitable timeframe, trade with self-customised system, consistence daily/weekly/monthly profit with good mm.

Just my2 pips.

Very, very well said!

wins:

system breaks even when it is not winning (achieved by diversifying entry setups)
risk/reward ratio is high
years of backtests show the system doesn't draw down much

Merlin touched on an extremely important point that seems to be grossly neglected. I see over and over again losses referred to as "bad" trades. You can spout all you want about words, semantics, etc, but let me tell you, your choice of words reveal your mindset. I'm a linguist by profession and my background includes 17 years of teaching in universities, socio-linguisitics, psycho-linguistics, and years of observation.

People refer to "bad" trades in the same manner as they refer to viruses or diseases...as something to be completely eradicated. Just a cursory glance through the larger system threads will show you how pervasive this mindset is. Each and every thread becomes a quest to "eliminate" all losing trades by many of the posters. I've seen great systems torn apart in a futile effort to eliminate the inherent losers. In the end, the remnants are unrecognizable from the original system.

Allow me to share a classification system that some of you will recognize the value of, while others will dismiss as bullshit. It's your choice, but give it some thought.

There are four types of trades.

Good Winning
Good Losing
Bad Losing
Bad Winning

A good winning trade is one in which you did everything you wanted to do. If you have a detailed system, you followed it to the letter. Even if you're more intuitive and free-wheeling, you followed your intuitions to the letter. You made money on the trade. These are the best trades of all.

A good losing trade is one in which you did everything you wanted to do. Even if you're more intuitive, you followed your intuition. The trade didn't make money, but you got out when you were supposed to or wanted to. Not every trade is a winner. You took your shot based on whatever it is you base them on, but it lost. These trades are the ones that display to us that we have the necessary skills to compete in this game.

A bad losing trade is one in which you borked your system. It doesn't matter why, but you screwed up. If you're halfway normal, your first reaction is to try to justify your aberrant behavior. Don't do that. Admit you screwed up and try to learn why. You lost money on the trade and usually, if you're semi-honest and semi-intelligent, you should be able to easily identify where you screwed up. Try not to do it again. These trades are the ones the highlight where you need personal and psychological growth as a trader. Pay attention and try to learn something.

A bad winning trade is one in which you borked your system, but you made money. These trades will destroy you. You'll get cocky, overconfident, and you'll lose big some day and wonder why. These types of trades reinforce bad habits. Sure, you made some money, but eventually when you triple down one time too often, you're going bust.

I strongy suggest you (for you non-native English speakers, all of the "you"s contained herein refer to the general "you". As we say in the US, if the shoe fits...) stop using the word "bad" to refer to a losing trade. One of the most difficult skills to attain in trading is that of accepting losers as an inevitable part of the process. Many people pay lip service to this notion, but few actually do it. Once you can do it, you're on the way to successful trading. And the first step towards this is to change your reality by changing your language.

Losses- Traders actually thinking they can predict the markets next move!!!!

Green dots for this guy!!!! Nice post brother.

yeah! Good idea, buddy.

EDIT: wait a minute. I think you can't people's posts anymore, can you?

Great post by Darkstar.
Whenever i have a loosing trade using my strategy I always go back over it and see where i went wrong. Most of the time it falls to "crap why didn't i follow my rules?" not being disciplined, the nice part about a loss is that you learn from it and this allows us to avoid making the same mistakes from previous trades.

exactly!! well put!!

One common reason for a loss is using the word itself as a misnomer ie. if you hammer it into your brain that losses are a grand mess up in your skills it can deter you from the alternative which is a loss can be seen as A Trade That Leads You to Your Next Win. And to keep that perspective in balance and not be lying to yourself losses are like striking out when at bat when playing baseball, when you strike out you simply strike out no big deal as it happens all of the time in baseball.

Guys, I think you missed my second post!

Perhaps I should have labeled my question different, such as "Describe characteristics of good and bad trades, both winners and losers". As my quote above states, winners can be "bad" trades (not following rules properly), and losers can be good trades (followed rules to a tee, but you can't always be right).

Hi Dopey.

I agree with you. I do have my bad losts and most of them began with fear of loosing too much (even if my initial SL was not hitted) and not following my initial plan.

Cheers,

For the longest time I referred to a loser as a "failed trade". While it was true that it failed to generate any profit, that wasn't very helpful in establishing self confidence in my trading ability. Now I make a hard distinction between a losing trade and a failed trade depending on whether I followed my rules or not. The market may get to decide if a trade will win or lose, but only I can control whether the trade was a success or a failure.

It may seem silly, but it was probably one of the most important factors in my eventual success.