Well, sorry for my clickbait title, but the truth is that here I am going to reveal what information changed my way of trading.
You may have heard that the Risk/Reward is the biggest thing to know in trading.
You may have also heard that the tight Stop Loss is the safest thing to keep in mind.
Others will tell you that CFDs are bad and Futures are good.
Some others will tell you that leverage will increase your profits, other will tell you that leverage will increase your losses.
Well, they are all true. Except for one thing.
The most important thing in trading is to understand how much loss you can afford with that position, BEFORE entering the market.
This implies of course that the Risk/Reward must be adequate, but I do not really give a s**t about the tight Stop Loss. If my RR is set to 5 but the Stop Loss is too tight, than probably I will be stopped out in several cases and my trading operativity may become frustrating.
Choose how much you are ready to lose.
A few days ago, I saw this position ongoing: it was on Binance, in the market UNI/USDT. Bitcoin trend seemed to lateralize and when BTC lateralized for some days, we usually see the volume distribution on altcoins and UNI already faced an important retrace after the big Airdrop that made 1200$ gift to many people (unfortunately I was not among them). I entered with around 975$ in a Buy position on the Spot Market. The price immediately moved up and what was the first thing I made?
I placed a selling OCO order slightly above the entry level to secure my size and cover entry+exit fees. The price arrived at 4.41 and then dropped. No profit, no losses. I secured my money in an uncertain market move.
From 4.26 USDT to 4.41 USDT could be a 3.5% profit. Good? Of course, yeah! 34 dollars. But taking all that comes is not a strategy. It is hope and my Target was at 4.8USDT. Yeah, volumes told me that.
So, the Stop Loss order saved me in perfect Break-Even Point. Anyway, a trader is someone that does not take it on a personal level. We know the market does exactly what the hell it wants. And we just need to cover in a proper manner.
That is why I went for the following position and a nice 4.6% was caught and brought in my pockets.
Why a 4.6% was so good and a 3.5% was ‘nah’?
Well, have a look here, at the price chart taken from Binance on 2 and 3 October. Local Maximum at 4.5140 USDT. My sell at 4.49 USDT. I kind of eroded all the price range I could and that is what particularly satisfies me. Catching a trend and deplete it!
Getting back to the previous question. Why 4.6% is ok and 3.5% is not good? Well, it all depends on the market movement. 3.5% was nothing compared to what could happen, but it did not happen and I stopped at BEP. 4.6% was the profit designated to come during a price rise, despite a drawdown that was already taken into account.
I hope you understand this point of view, since sometimes, a lower profit will be even better than a higher one since every market scenario is different from the others and every scenario must be evaluated independently.
