What exactly is a good trade?

If you ask most people, they’d probably say that a good trade is one that makes money.

Obviously, there’s a lot of truth to that. If you’re losing money trading, then things clearly aren’t going well.

But it’s not always quite that simple…

Here’s another truth – not all losing trades are bad. Only some of them are.

If we can eliminate the “bad” losers, then we’re well on the road to the holy grail of trading: consistent profitability.

The Holy Grail of Trading

Let me explain…

As a trading coach, I’ve worked with thousands of traders over the years.

My traders come from every walk of life.

I’ve coached former executives at big investment banks, professional traders from proprietary trading firms, and even complete beginners.

One clear pattern I’ve noticed in successful traders is that they don’t define whether their trades are “good” or “bad” based on their outcome.

The best traders I’ve ever met, worked with, and coached, all had the same exact attitude towards their trading.

And it didn’t matter whether they’d managed hundreds of millions of dollars or if they were trading their own money.

That attitude had to do with focusing on what they could control versus what they couldn’t.

As traders, we have complete control over when we enter a trade and how we manage that trade once we’re in it.

What we can’t control is how the market will behave.

This means you can take an identical-looking trade setup in back-to-back trades and get two completely different results.

The first trade could be a winner and the second could be a loser.

The lesson here is that even the best setups will fail. But just because a trade ends up being a loser, doesn’t mean it was a bad outcome.

If you followed your strategy with discipline and didn’t bet the farm on that losing trade, then it was indeed a good trade.

The trap so many traders fall into is that a strategy they’re following eventually stops working one day. Maybe they even experience a string of consecutive losing trades.

Disheartened, they think their losing trades were all bad. Then they give up and start looking for the next strategy.

Keep Your Cool

What they should have done was kept their cool. So long as they followed the strategy with discipline and kept their risk to responsible levels, they should stick with that same strategy.

The only unacceptable outcome when trading is when you’ve deviated from your strategy and your plan.

If you take a huge loss, for example, then you did something wrong. You either risked too much, or you didn’t exit the trade when you should have.

I know this topic isn’t all that exciting… but this is far more important than discussing a potential trade setting up right now.

Good trading shouldn’t be an adrenaline rush. It should be steady, stable, and ultimately quite predictable.

If you focus on making the cash register ring week in and week out, you’ll be stunned at how much your account will have gained by the end of the year.

Happy trading,

Imre Gams
Analyst, Market Minute