Thinking in Probabilities

  • Successful traders put themselves in alignment with the probabilities.
  • If you know a trade has a probability to make money, you’ll go ahead and put it on in a timely manner. Why would you not? It’s probably going to make money.
  • If you know a trade is only probable, you’ll put in a protective stop loss. Since it’s only probable, you’re mindful of other possibilities. It could  be a losing trade. Therefore, you protect yourself.

Taking Controlled Risk

  • Probability is the mathematical center of wise risk. Successful traders risk to win. For the risk taker, this uncertainty between small loss or large profit is where the fun is.
  • If you tend to over trade or over risk, you need to pull in your frame of safety. You need to establish trading guidelines that will protect you. You need to be alert to your propensity to over risk and step back every time you catch yourself over extending.
  • If you tend to avoid risk, you need to expand your frame of safety. You need to slowly add risk to your trading so that you become emotionally inoculated. Decrease your trading size and / or change to a trading vehicle that is less volatile. When this is comfortable, slowly increase size and volatility.
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