How significant is it for you to be right? Let us say I could guarantee that you would earn money by the end of the year--lots of money--but you would likely eliminate money on 90% of your transactions. Would you enjoy that? Can you tolerate that? Can you accept that? Most people would probably answer no to all three questions. And if that is you, you most likely are denying yourself the opportunity to generate money simply because being right is more important than earning money.

Some of you could be saying, How can you be wrong 90% of the time and still earn money? The solution goes back to the golden rule of trading, Cut your losses short and let your profits run. Let us say that 90% of your trades eliminate money and your ordinary loss is $100. Over the year you create 100 trades so you wind up losing 90 of them for a entire loss of $9,000. However, let us also say that your average winning trade is a large R-multiple. It's an R-multiple of 100 or even a $10,000 winner. You've got ten of those in a year, which means you end up earning $100,000 on your winning trades. If you subtract your winnings from your losses, then you would wind up getting a profit of $91,000 in the close of the year. You earn $91,000, yet 90 percent of your trades are winners.

My guess is that 99% of the trading population couldn't exchange a system that would produce those sort of results. The reason is because they don't get to be right enough. They have too many losing streaks. They have losing streaks that are five in a row. Most individuals can't tolerate long losing streaks. When they happen, they completely abandon what they are doing. In this system you can easily have 25 consecutive losses. Now you become certain that your system is broken, and you attempt something else.

Let us look at the other end. Suppose you got to be right 90 percent of the time. Suppose your typical win was $100 and your ordinary loss was $2,000. This means that you would have a total of 9,000 in winnings and $20,000 in losses. You'd lose $11,000. Can people trade that system? Yes, they would. They would likely trade it for a number of years until they went bankrupt. Why? Because they get to be right most of the time and that's very rewarding.

You might be saying, but how can people possibly tolerate losses of $11,000 after 100 trades? It is easy; they turn the losing trade to a long-term investment in their own mind and say, it is only a paper loss. By way of instance, I have had workshop attendees that were likely way above average concerning sophistiion. However, I asked them to raise their hands if they had an investment in their portfolio that was only worth 50% or less of what they paid for this. Eleven individuals raised their handsover a fourth of the class. And my guess is that one of the total population of investors, most individuals are sitting on a number of big winners, hoping they will come back. Why? Because they can't stand to be incorrect on an investment and they are waiting to be right on those losing transactions.

What is the price of having losing investments in your portfolio? It's major. To begin with, you are utilizing valuable capital up with nonproductive investments. Secondly, you are missing many good opportunities.

Why Being Correct Seems So Important

There are two principal reasons why we concentrate on being right. To begin with, we are conditioned to be right from the college system. Secondly, everyone in the trading sector gives people what they need --ways to be right--which tends to perpetuate the myth. Let us take a closer look at these two reasons.

First, we are conditioned by the college system to the significance of being right. In school you are taught that there are right answers and wrong answers. What is a ideal answer? If you learned how to live in the system, you learned that a ideal answer is whatever the teacher desired.

Your operation is measured periodically through evaluations in which you are asked to decide on the ideal answer. If you can't get over 70% right on the test, you are labeled a failure and ostracized. Your embarrassment may even be in public in front on all your pals. And if your embarrassment isn't public, it certainly is semipublic. Your poor performance goes house in the shape of a caliber with a comment that Johnny is somewhat slow or Johnny is bright, but he just doesn't try. Generally, now, the main people in your everyday life get involved--your own parents.

Even if you understand the system and work hard to know the ideal answers, you still may be taught that your operation is not good enough. It usually takes 94 percent right to find an superb grade. But how many children go home and show off their 94% test to daddy only to acquire the answer, Why did not you get 100%?

Therefore, it is no wonder that traders want to be right all of the time. And being right generally costs them dearly concerning profits. Whether you've been through 20 decades of schooling and have a graduate degree or less than 10 decades of schooling, you still have the identical conditioning about being right.

The second reason people want to be right is that support providers for traders and traders feed the prejudice to be right. To begin with, software vendors tend to provide systems that could be highly optimized. Once you've optimized your trading, you are able to lay a line over the prices and determine exactly where you should have sold and bought. It seems obvious. However, the same optimized system will very badly when applied to the real world.

At investment conventions, the most popular speakers are people who provide information regarding large probability entry techniques. If you say, Trade with the chances on your side and show someone a egy that's right 75% of the time, you'll find a massive audience. However most techniques of the nature generally have large losers and may not even have a positive expectancy. Nevertheless, being right 75% of the time is takes for people to exchange them.

The Option: Expectancy

What you have to do now that you are trying to live in the real world is know about expectancy. My book, Trade Your Way to Financial Freedom is one of the best resources I know that covers this topic. By definition expectancy is how much you can expect to create, on the average, over several transactions. Expectancy is best stated in terms of how much you can create per dollar that you risk. In Trade Your Way to Financial Freedom I pay this important topic as well as detailed instructions on the best way best to compute expectancy. In my workshop and home study program on the best way to Develop A Winning Trading System we really concentrate on this topic and show you how to incorporate expectancy to a profitable, profit generating trading system.

World--renowned trading coach Dr. Van K Tharp, is widely known for his best-selling book Trade Your Way to Financial Freedom along with his classic Peak Performance Home Study software for traders and investors. http://www.kickstartcart.com/app/?Clk=1222682

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