The desire to be right….

Last weekend I gave a couple of presentations at an FX conference in Bratislava. There was an audience of around 250 people of which around 50% had been trading for less than 2 years. When presenting to a group of traders I don’t know, I always like to get a gauge for what type of trading they’re interested in and what their expectation levels are.

I tend to find that a very large percentage of traders want to have high win rate strategies. This desire to be right is not in itself a bad thing. In fact it is trained into us right from childhood. We are taught that being ‘right’ at school leads to better exam results which lead to further education which hopefully leads onto a great career. Once we do join the workforce, doing our job to the best of our ability is again programmed into us, mistakes are something we try to avoid….

When it comes to the markets, we may as well throw everything we’ve learned about being right out of the window because it’s not always the best way to approach trading. Don’t get me wrong, having a profitable high win rate strategy is of course great, but it’s not necessary in order to be profitable.

Newer traders will naturally want to be right as much of the time as possible because they find it more difficult to deal with having losing trades. I was speaking with a trader recently who gave a friend a strategy that was right 40% of the time but when its winners came in they had very large profits. His friend simply couldn’t deal with having losing trades and so started cherry picking trades, trying to be right. As a result he missed out on the big winners and thus underperformed the strategy. So he asked if the trader had something that was right more often. The trader said that he did but it wasn’t anywhere near as profitable. The friend said that’s ok, I’m happier to just be winning more often!

The desire to be right is what also results in some traders deciding not to use stops or use stops that are simply too big. That way they can avoid being wrong (getting stopped) as much as possible.

So back to the traders from last weekend. What would they rather me discuss, high win rate setups or low win rate setups? Yep it was the former. Well I guess I’m happy enough discussing high win rate setups, it leaves the cream for me….

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Over to the markets, one of the potential big FX market movers this week could be the ECB press conference on Thursday. The comments and actions taken by Mario Draghi will influence that of the Euro/Dollar pair among others. If the Euro gets back up to 1.1450, I suspect it will breakout this time and make a run to new highs. A close below 1.12 however would likely bring in more sellers and a potential run for the trend-line indicated on the chart. Either way, volatility could well increase later this week….



Have a great week

Charlie Burton, Ezeetrader

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