Everyone at some point in time has had that eureka moment. The light bulb comes on, and the solution to some lingering problem now seems so clear. Oddly enough, the light bulb came on for me while watching poker on TV one day.
Before my eureka moment, I struggled to pull the trigger and enter a trade. I had already identified profitable chart patterns, but I was immobilized by the fear of being wrong and losing money on a trade. Occasionally, I would pull the trigger and make a trade, but most of the time I would just sit back and watch to see if the stock went up or down. The majority of the time, the stock would climb minutes after I passed up the opportunity to enter the trade. I would kick myself for not pulling the trigger and entering the trade.
I did not become a successful trader until I understood how probabilities apply to trading. I became the successful trader I always longed to be, once I understood and accepted the fact that even good chart patterns sometimes fail. If you are currently struggling with some of the issues I once faced, and if you know anything about Texas Hold'em, then brace yourself. By the end of this article, you too may have a eureka moment that turns your trading career around forever.
Professional poker players will play an Ace King every time it is dealt to them. There is a high probability that they will win the hand. However, after the flop, even an Ace King can be a loser. The professional poker player who misses the flop will normally fold their hand if several of their opponents begin raising after the flop. Why?........because they understand probabilities. It is highly likely that one of their opponents did hit the flop and has, at least, paired one of their cards.
The professional poker player understands that the Ace King works a high percentage of the time, but even an Ace King can be a loser after the flop. The direction of the market after entering a trade is like hitting or missing the flop. This is when you determine if the probabilities worked in your favor or not. Staying in a losing trade is like hoping and praying your Ace or King turns into a winning hand on the turn or the river. All the while, your opponents keep raising you to see those next two cards.
Just like a professional poker player will play an Ace King every time if it is dealt to them, successful traders identify and trade high probability chart patterns every time. Neither are afraid to pull the trigger, because both the professional poker player and the successful trader understand probabilities. Both understand that the majority of the time they will win with an Ace King or a good chart pattern. However, they both also understand that no matter how good their cards or chart pattern may be, they will always fail some of the time.
A chart pattern that works 7 out of 10 times will still fail 3 out of 10 times. The chart pattern is still good and the successful trader will continue to trade the pattern again in the future, because the chart pattern normally works around 70% of the time. The successful trader understands that they just happened to hit one of the 3 out of 10 times the chart pattern did the opposite of what it usually does. In the same way, the professional poker player will continue to play an Ace King the next time it is dealt to them.
Understanding probabilities makes it easy for the successful trader to pull the trigger and enter a trade. It also keeps the successful trader from doubting and/or abandoning their normally successful chart patterns. Finally, it allows the successful trader to accept losses, and get out of losing trades quickly.
