Your chances of success as a trader are directly proportional to your hard work, practice, and patience. You may have heard that 95% of traders lose money in the market, and only 5% of traders can make money, but I believe that this is a false statement because this myth is not based on any conclusive pieces of evidence or facts. It’s just like another myth that we keep on circulating on the internet every day.
Trading is a long-term process, and you are here for the long term, so while trading, you should always have a broader vision. Once you understand this, then it becomes very easy for you to trade because now you know that markets will give you a lot of opportunities, and for that, you have to stay in the market hence, having a long-term vision is very much important.
As a trader, your success is not measured in one trade or one day. Your success is measured over a period of years. That means one bad trade will not make you an unsuccessful trader. Similarly, one good trade will not make you a successful trader. So, the question remains the same, what are your chances of success as a trader? The answer to the question required a logic-based discussion which we will do through this article.
Often, many amateur traders come into the market with a lot of unrealistic expectations. Trading is often called a 0 sum game where one will lose money, and the other will gain it. However, making consistent money over a period of time is a whole different game. So, 95% of the traders may not be professional or full-time traders, but that does not mean that they can not make money. Let me explain this to you..
As I said, many traders come with a lot of unrealistic expectations, and one of the unrealistic expectations is they want to be a full-time professional trader right from day 1. However, there are a lot of traders out there who are not full-time traders but make consistent money from the market. As a new trader, your primary aim should be to do profitable trading for this month, then for next month, and so on. By doing this, you will become a profitable trader, but not a “full-time” trader, and when you get enough experience, and feel that you can do trading for full time, then you can think of becoming a full-time trader.
If you think like this, then your chances of becoming a successful trader increases immensely, I will explain to you why. When you come into the market with the expectation of becoming a professional full-time trader, that puts a lot of pressure on your shoulders, and as a result, many traders over-trade or over-leverage their positions. On the other hand, if your goal is to do profitable trading for a month, then you should focus more on risk management psychology, and other things that are important for becoming a successful trader. Hence, it is always important to have realistic expectations.
Generally, many people think that the more the number of winning trades the more your chances of becoming a profitable trader, but this is WRONG. You can be a profitable trader, even if you lose half of your traders, and I will tell you how this is possible.
For example, suppose you take 100 traders and out of 100 trades in 50 trades you made a loss, but then also you can turn out to be a profitable trader only if the Risk to Reward ratio is 2. Now, let’s understand the game of the Risk to Reward ratio with simple math.
Suppose, you trade with a 1:1 Risk to Reward ratio i.e for every 1 rupee you are willing to put 1 rupee on the table. If you want to be at breakeven by using a 1:1 risk-reward ratio, then out of 10 trades you must win 5 trades, that is your win rate should be 50%. On the other side, If you trade with a 1:2 risk to reward ratio, then out of 10 trades, if you win 5 trades, you are a profitable trader because you earn RS.10 in your 5 winning trades and you lose RS.5 in your 5 losing trades ( due to 1:2 RR ).
As you can observe from the above example, as you increase your Risk to Reward ratio, and if you have a moderate winning rate, then also you can turn out to be a profitable trader. That is why the RR ratio matters more than the winning rate, and it is a very important concept, and every trader should understand this very deeply. However, this is not the holy grail. You need a strategy with an edge that will further increase your chances of success as a trader.
A good risk to reward ratio will do half of your work, and the rest is done by your trading edge. In order to increase your chances of success, you need a good trading strategy with an edge. Even if you trade with good risk-reward ratios, and if you don’t have a trading edge, then you will be nearly at breakeven over long series of trades.
As we discussed above, with an RR of 1:1 you need a win rate of 50 %, and for an RR of 1:2 you need a win rate of 33%, and so on. Now, suppose you have a trading edge, and you know what works for you under particular conditions then for RR of 1:1 your win rate becomes 55-75%, and for RR of 2:1, your win rate becomes 30 to 60%. That is the power of a trading edge. As you find your trading edge, your win rate automatically increases because after knowing your edge, you only take high probability trades.
I hope through this article, you were able to understand what exactly needs to be done to increase your chances of success as a trader. I know a lot of my students who are really doing well in trading and making consistent money, and one thing I find common amongst all is they follow strict money management rules and they trade with an edge. So, simply trading a strategy with an edge and taking trades with a good risk to reward ratio can increase your chances of making money consistently in the markets.
If you want to know more about Risk Management & Intraday Trading Strategies you can refer to our previous blog on