Volatility can make or break you as a trader. For many traders, it is causing unnecessarily high rates of losing trades. To understand the role of volatility, let’s consider a couple of trading myths that make a perfect sense when you first hear them. As they are myths, they simply don’t work in practice. Understanding why these 2 myths don’t work in practice, gives us some insights into a key factor of trading success – Volatility. In fact, taking into account this one factor could absolutely make the difference between your success and failure as a trader.
So what are these myths?
- If your trading system loses 80% of the time. You can simply change your buys to sells (and sells to buys) and you’ll be winning 80% of the time.
- Entering the market based on the toss of a coin would see you winning 50% of the time.
This is just simple math, right? Well, let’s see what happens when we introduce another factor into our analysis. Let’s use an example to illustrate. Let’s consider a trade in AAPL with a 5 cent stop loss.
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