At the time of writing I only make a profit on 41.38% of my trades. Many people might think I’m a poor options trader. I look at it differently. Think of it more like an athlete. It is said, successful tennis players still lose more games than they win. They become used to losing. Importantly they know the points or games they need to win and play accordingly. Of course they don’t like it, they just know how to accept it and move forward.
Trading is the same. You will lose some trades. I lose 58.62% of the time. On the face of it that looks like I lose money. I don’t. Sure I lose on some trades, just not when looking across all my trades. A simple percentage doesn’t tell the full story.
Don’t confuse taking losses early with the business concept of fail fast.
The amount of profit or loss per trade is important. I average around 2.5 times more profits on winning trades than I do losses on losing trades. Taking losses early is the important part of the equation. Perhaps it is easier to show an example.
Number of trades 
Total profits 
Total losses 
Percentage of winning trades 
Percentage of losing trades 
Average profits [2/(1×4)]
Average losses [3/(1×5)]
Expectation per trade [(2-3)/1]
Total profit [2-3]
So you can see that every time a trade is entered into, the expectation is for a profit of $2 200 and an overall profit after 100 trades of $220 000. Sounds a lot better than picking winners less than half the time.
It is important to monitor all these numbers. You always want a positive expectation per trade. If that drops below zero you need to revisit your strategy. Something is not right. Human nature being the way it is, one of the most likely causes is not taking the losses early enough.
Don’t confuse taking losses early with the business concept of fail fast. That’s is a story for another day. The short version is, you don’t want to fail fast, you want to recognise failure fast. Thus reducing the potential losses.
- Do you know your expectation per trade?
- Are you good at taking losses early?