Why Perfection Is A Bad Trading Goal

Why Perfection Is A Bad Trading Goal

If we want a perfect entry, we will never trade.

If we want a perfect company, we will never invest.

If we want a perfect person, we will never marry.

If we want a perfect job, we will never be employed.

Perfection is not the goal, success is.

A big stumbling block for new traders is the goal of perfection. If you think it is possible to be right about every trade, every time, and hate to be wrong you are going to have a bad time. Trading is much like being an entrpreneur, during the creative process you win some and you lose some. Some businesses are profitable and some lose money and go out of business.

Some trades make money and some trades lose money and profitability really comes from bigger wins and smaller losses not all wins. Few bowlers every bowl a perfect 300 and no baseball hitter has every batted over a .410 batting average in a season. Perfection is not possible because you are competing against the composite of all other traders and investors in the markets.

You can have winning streaks and be profitable but no matter what you will eventually have losing streaks and drawdowns, that is just the reality of the markets. Even the best traders in the world have ‘only’ 50%-70% win rates. Both value investor Warren Buffett and trend follower Bill Dunn have had +50% drawdowns in there capital and they are some of the best of all time in their fields and using their methods. There are few delusions greater than entering the markets with the goal of perfection. Focus on making money with an edge, focus on a repeatable quantified system.

Accept your losses quickly and maximize your gains by letting your winners run until you have a reason to lock in your profits. To be a profitable trader you have to be a good loser. Accept there will be losses and you will cut them short and not hold on to a losing trade on the wrong side of a trend because you don’t want to exit it and admit you were wrong about the trade. Admitting to your losses is one of the biggest parts of the trading game. 

Perfection makes you wait to enter a good trade. Perfection makes you hold on to a losing trade hoping it will come back to even. Perfection makes you upset about every losing trade. Perfection keeps you in the learning process far too long when only trading can teach you the toughest lessons. Perfection keeps you looking for the perfect trading system and ignoring a good trading system with an edge becuase it is not good enough. 

“There are just four kinds of bets. There are good bets, bad bets, bets that you win, and bets that you lose. Winning a bad bet can be the most dangerous outcome of all, because a success of that kind can encourage you to take more bad bets in the future, when the odds will be running against you. You can also lose a good bet no matter how sound the underlying proposition, but if you keep placing good bets, over time, the law of averages will be working for you.” – Larry Hite