The Lesson From The Biggest Trader I've Known

30 нояб. 2022 г.

Hello to you TradingView traders,

All the below are based on my preferences, I don't give any financial recommendations and I have nothing to sell you with this article.
I'm sharing content because I see a lot of traders being/becoming broke and I don't want you to be one of them.

I was fortunate enough to work alongside a trader making 7-8 figures a month.

👇 Here is what I learned from him👇

The Pareto law

The Pareto principle or law of the vital few, stating that 80% of the effects come from 20% of the causes.
Took me quite some time to truly understand it

Throughout the years, I've had a sneaking suspicion that a small percentage of my trades were responsible for the vast majority of my profits.
Basically, trades I entered early, in the expected direction and held until the next support/resistance zone.
Such trades, where the next S/R confluence zone is "far" tend to give the best results.

Then I started to wonder if I should prioritise only those setups over others because of how lucrative they are.
Why bother taking the "less easy" trades right I asked to a senior trader at the prop?

His answer was enlightening

He said, "because we don't know upfront if those trades will work... we only know they have a better chance of giving bigger rewards.... though it's not a guarantee"
And that's why we have to take the other trades too because "even those ones could bring a lot of gains even though the initial configuration is probabilistically less rewarding"

This piece of wisdom killed me inside because I'm lazy and as everyone, I want to make the big money taking a few trades per day/week only
I felt some pain to learn there is no guaranteed way to know upfront even if a likely high rewarding trade will finance my future fancy lifestyle....

He told me then "If you want to make a soccer player wage, you'll have to take bigger position sizes for those high reward setups"

Sounds obvious right?

When you know your trading system gives 20% of very rewarding trades and 80% of small gainers, it makes sense to increase one position size for the rare high reward trades.

Very quickly, I learned that any other strategy for making money in trading is doomed to failure.

To balance out my losing trades and have a decent profit at the end of each month, I had to bet big on high reward setups.

Might sounds shocking to most of you but even with a low win rate, as long as your winners size and PnL are far higher than all the other trades, you'll be profitable.

This simple change was one of the main things that helped me become a very successful trader.
Success defined as how consistent I am at making the desired monthly/yearly salary and at increasing it every year.

If you struggle making money out of your trading, take some time to reflect and identify which trades setups usually bring you most of the available gains.
Then backtest visually what you would have made if you'd had 2X, 3X, 4X the position size on those trades, keeping all the rest equal.


I'll keep bringing a few articles like this every week because it helps me clarifying my thoughts AND giving back to the community makes me feel good about myself somehow :)
I intend to share all facets of what makes a fantastic profitable trader and how to attain that status.
This is both the most difficult and the most rewarding job.

Thank you for reading
Dave