Why thinking in probabilities is required

Trading can be a very profitable profession. Let’s be honest, nearly everybody who is dipping their toes in the markets for the first time is dreaming of the profits they will generate, living the life they want, in total freedom. When attempting to become a professional trader it can be challenging to leave your dayjob and all securities behind, because you know that trading might be risky as you will be putting money on the line. So you make the choice to attempt trading, and be responsible with your funds. Even though you might be attempting to be responsible you will likely lose at first as you lack the right mindset and skill set that is required to become a successful trader.

While there are many reasons why you seemingly make the wrong calls, one that stands out has to do with mindset. You see, while you may have heard, read, and potentially even told yourself that trading can be risky, this can quickly lead to self sabotaging. As a matter of fact in an attempt to be responsible with your funds, you might fall into a thinking pattern where trying to seek certainties in trading becomes a dominant force in your trading habits.

Have you ever experienced frustration while taking a losing trade? Were you ever in the situation of closing out of your trade early on for a small profit, only to find out it was indeed the right call and price moves in your direction as you planned, yet here you are sitting on the sidelines missing out on the move? Then this article is for you!

Lets look at a hard cold fundamental truth.Trading is the endeavor of generating profits by risking your own funds. This means you need to realize two important truths.

  • In order to make money, you must risk money, as without risk, there is no reward.
  • Trading is a game of probabilities

Stop thinking in certainties

A natural reaction might be looking for certainties in the markets. Once in a trade, it is easy to start looking at other ideas, look at news articles, and read about what other people say about the coin. This can be a tiresome effort, and often is not worth the effort. Simply accept the fact that nothing is certain in trading. Anything can happen at any moment, at any time. Therefore it is impossible to know for certain whether your trade will be a winning trade or a losing trade. Time would be much better spent in thinking probabilities, rather than in certainties.

Accept the fact you can lose: 

By thinking in probabilities you also accept the fact that there is a chance you might lose the trade. Therefore it can always be expected that there is a chance you lose money. By simply knowing beforehand how much of your funds you are willing to risk, and accept the fact you might actually lose it means you are accepting the nature of the market. The market does whatever it wants, and when it wants. Losing trades are part of trading, as a win rate of 100% over an extended period of time is simply impossible. By knowing the risk beforehand, you compensate for the insecurities that the markets come with. The trick is to keep those losses small, and seek for good opportunities.

It is not about being right:

Losing a trade, means that you were wrong on your idea. The problem is that this quickly leads to embarrassment, frustration or anxiety. What if I would tell you that a good trader can be wrong on a trade idea, and still be profitable? Trading is not about being right, or making you feel good about yourself. You are here to make money, not to prove yourself in front of others. Therefore, if you can set your ego aside, and accept the fact you were wrong, you can correct your mistake, and adapt to what the market presents to you, and still be making money. As a matter of fact, the sooner you accept you can be wrong, the sooner you might be able to cut your losses and move on to the next trading idea. Even though you might have been wrong on your trading idea.

These three topics are a good way to start creating a healthy attitude towards the market, and see things for what they are. If you have the right mindset, it allows you to have the right focus and slowly build out your strategies in a healthy way.

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The information provided above is not financial advice but for educational and entertainment purposes. Please do your own due diligence or consult a financial advisor before investing in any digital assets.

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