There are generally two ways to trade. Either be often right and make many gains, or be less often right, but make some killer trades. Which is the better one?
As so often, there are various answers to this crucial trading question:
- The trend investing trader likes bigger gains and is less interested in peanut stock picking.
- Psychologically the “many smaller gains system” is highly advantageous.
Making more gains than losses stabilizes the trader’s mind. If you feel that you are out of sync with the market or that you became a trading coward over time, a trading system with a high winning probability is right for you.
Just as a short intermediate note, to cure mental trading blocks, autotrading systems are also useful.
High probability, that is something above fifty percent. A trading system that is right more often than not sounds fine, almost like a no-brainer, but there are pitfalls. Legions of wannabe Forex traders learned it the hard way. Their educators – so called Forex robots.
Game number one in trading system selling Forex town is to write an EA that doesn’t use a stop loss, or that even plays the martingale. In other words, many small wins, often literally next to hundred percent gain to loss ratio, come at the price of some huge and devastating blows.
What we need for trading is a high probability formula or system that also assures that losses are kept in check. That fits perfectly to trend trading, because the stop loss system has a special meaning for trend trading strategies. If the stop got hit, the trend came – probabilistically seen – to an end. Otherwise it is still marching on.
Using a tight stop system means generally that the percentage of winners declines. It is the combination of a winning ratio better than 1:1 or fifty percent and a tight stop that has to be sought. So, long story short, here is our recommendation for a tight probabilistic trend trading system.