Four Types of Trades

Four Types of Trades

“There are really four kinds of trades or bets: good bets, bad bets, winning bets, and losing bets.” – Larry Hite

Hite explains that good and bad trades are independent of winning and losing trades. Therefore, a winning trade wasn’t necessarily a good trade, and a losing trade wasn’t necessarily a bad trade. There are trades that are good when taken that end up losing and trades that are a bad idea from the start that make money.

We should not get to excited over winning trades or beat ourselves up over losing trades. We must have the ability to logically assess whether our reasons for taking a trade were valid upon entry.

A good trade can lead to a loss because of the nature of randomness.

A bad trade can lead to a big win due to luck.

Winning trades can come from bad entries or good entries in the short term.

Losing trades can be caused by bad entries or good entries in the short term.

In the short term trading results can be random but in the long term managing risk, going with the trend, and following a system with discipline will separate the lucky traders from those that have an edge.