How To Tell a Good Trade From a Bad Trade?

It's not about winning or losing. It's about your process throughout the trade.
Share on facebook
Share on google
Share on twitter
Share on linkedin
Follow me

We have a quick question here from a new subscriber asking how they can better evaluate the trades to know whether they are taking good ones or bad ones.

Now, I think the challenge with classifying trades is good trades and other ones as bad trades is that we often try to associate a good trade with a winning one, and a bad trade with a losing one. But that is just not the case, and will get you into a lot of trouble in the long run.

So let me give you an example we had a while back, right. So someone wrote in saying that they are very excited because they watched one of our videos on risk sentiment, and when they saw that a particular event caused the market to go risk off, they immediately bought the Aussie Yen and made a few pips.

Now of course, for those of you familiar with risk sentiment, you will know that you don’t buy the Aussie Yen on risk off sentiment, right? You sell the Aussie Yen on risk off sentiment.

So even though they made money on that trade with the Aussie Yen actually going up, with that risk off sentiment, it was a really bad trade, because they entered it for the wrong reason, right. So, in that same risk off scenario, if that should play out 100 times, they’ll lose money in the long run if they continuously buy the Aussie Yen during risk off sentiment, at least in the short term.

So, this should explain what I mean with not associating good trades of winners and bad trades with losers. Always evaluate your trades on whether you follow the right process.

So did you conduct your proper analysis, your fundamental sentiment and technical analysis? Was there a valid reason for you to think the market will buy the one currency and sell the other? Did you do your technical analysis correctly to mark out the highest probability places for entries and exits? Did you close the trade for the right reasons?

If you can only say yes to all of those questions, then that would be a good trade right, regardless of the outcome, whether it was a winner or loser. And because you know, if you follow the same process 100 times you should have more winners than losers, the reason why I say you should have and and not will have, is because every trader will be different, and will analyze the market differently.

So, if you understand the basics of the fundamentals, that’s a great start. But just having the basics will always put you behind a trader that has a lot more experience and have been, they’ve seen this movie 100 times so to speak, right. So they can recite the words and they can mimic the actors expressions and the body language, because they’ve watched that same movie 20 times over.

In the same way, the trader that has traded that type of situation 30 times over, more than you they will probably analyze and react to it a lot faster and a lot better, and executed it a lot better as well. But that’s okay, that shouldn’t be a negative thing, that should be a motivation to just simply keep added, and make sure that you’re always constantly improving and learning. Now when you conduct your research and your analysis correctly, the good trades will always find you. After time, you will start to see patterns in the market and know what type of things will be market moving, just as they happen.

And when you start to get into the swing of how the market works and how it thinks, you’ll notice examples where, you’ll just instinctively know that the market will move, and you can just jump in and trade those trades accordingly. Now those trades you force and take because you bored and not following your process, those are usually going to be the bad ones, and that you regret later, whether they are winners or losers.

So I hope that helps. Don’t think of it as good trades and bad trades in the sense of winning and losing, always think of a good trade as one that you followed your process, regardless of the outcome and think of a bad trade, as the one that you didn’t follow your process, regardless of the outcome. Any other questions? Just let us know.

0 0 vote
Article Rating




A Forex Source subscription is just $97 per month. Cancel in two clicks.
*Limited offer. Normally $247.
Notify of
Inline Feedbacks
View all comments