InvestorQ : If I don’t need to get my calls right, then what does matter in trading?
Rutuja Nigam made post

If I don’t need to get my calls right, then what does matter in trading?

Answer
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Crowny Pinto answered.
2 years ago


It is not about being right but what you do when you are right that matters. It is not about being wrong but what you do when you are wrong that matters. Take the case of two traders in the stock market. Both of them took about 15 trading positions during the week. At the end of the week, when they sat down to do their review, they realized that they had got 10 of their trading ideas bang on target. However, while the first investor ended the week on a 3% net of all costs, the second investor ended up with a loss of 2% on his trading portfolio. Why this difference and how is it that the second investor made a loss despite getting nearly 2/3rd of his calls right in the market? That is why it is important to understand what you do when you are right. The first investor kept strict stop losses and steady profit targets. He treated trading more as a discipline than as a game of flair and skill. The second investor, on the other hand, made 2 mistakes. Firstly, he did not put losses and hence most of losses resulted on a single volatile day. Secondly, when the trend was positive, he added more positions making his trading portfolio unwieldy. That is the reason what you do when you are right matters a lot more and how you protect yourself when you are wrong also matters a lot more.