This newsletter is sponsored by PHEMEX, the world's best crypto exchange for both spot and leverage. Sign up with the link above and get some free Bitcoin and up to a $1200 bonus for depositing 1 BTC or more. I really encourage you to check them out.IF YOU HAVE ANY ISSUE WITH THE NEWSLETTER OR YOUR SUBSCRIPTION, PLEASE CONTACT: PREMIUMSUPPORT@GETREVUE.CODefining A Good Trade And Random ReinforcementThe goal of a successful trader is to make the best trades. Money is secondary. - Alexander ElderThe idea raised in this quote is essential and often misunderstood. If not by how much money is made or lost, what defines a good trade and a bad trade?A good trade should be defined as one where a trader planned their trade, traded their plan, and managed their risk — those are all elements they can control. It is NOT defined by the outcome. A bad trade, on the other hand, is where a trader fails to follow their rules and executes trades against their better judgment. This is always going to be a bad trade even if it happens to be profitable. Now let’s talk about Random Reinforcement, which is a rarely discussed reason that many traders fail.As defined by Investopedia, “Random Reinforcement” is:Using arbitrary events to qualify (or disqualify) a hypothesis or idea; attributing skill or lack of skill to an outcome that is unsystematic in nature; finding support for positive or negative behaviors from outcomes that are inconsistent in nature—like the financial markets. The market has a tendency to reward bad habits, while concurrently punishing positive behaviors, especially with a small sample set. Let’s take a theoretical example to display this principle.Bob wants to leave his job and become a crypto trader. He sets aside some starting capital, follows the markets and the “big names” on Twitter. He sees them talking about an altcoin, opens the chart, and sees that price is rising fast. He buys, goes to take a shower, returns, and sells for a quick profit. He does this again before lunch and strings together a few successful trades. Bob starts to feel confident that he is a talented trader. So, what is the problem? Bob is trading without a system or a plan and is being fooled into believing that a successful outcome on a few random trades is indicative of likely success moving forward. The market has rewarded his bad behavior. We know how this story ends — Bob continues to make impulsive trades and eventually loses his capital. There is a flip side to this coin. Let’s say that Bob learns his lesson and spends months developing a trading plan, complete with risk management, proper portfolio allocations, and trading rules.He identifies a trading opportunity that fits, takes the perfect entry, and… stops out of his trade. He tries again. And again. He loses 7 times in a row. The market is punishing Bob for his good behavior. Bob starts to doubt his system and takes a high-risk trade that violates his system — and is successful. To his surprise, he tries this a second time and also makes money. Bob is now back to square one, trading without a system because the market has rewarded his bad behavior and convinced him his old unsystematic method was profitable. Through random reinforcement, the market has re-conditioned the way Bob approaches trading by distracting him away from his trading plan. He has allowed himself to be manipulated into an impulsive, high-risk, revenge-based trading approach. This may work for the short run, but it’s a setup that always leads to failure.Even if Bob makes money in the latter scenario, he has taken a BAD TRADE.The bottom line? Judge yourself by your process, not the results - you cannot control what price does after you take a trade. If you remain ironclad in executing your system, over a long period of time, you will be profitable. This means if you’re just starting risk only 1-2% per trade in order to leave room for failure until you find your edge.To my free members (I love you!) - paid members receive emails like this at 5 times a week - Monday through Friday. Every Wednesday I chart any request sent by my paid members, often over 30 or 40 charts. It’s a ridiculous amount of work, but I do my best to add real value to anyone who subscribes. If you would like to join the paid side, you can do so for $15 a month here.https://www.getrevue.co/profile/TheWolfDen/membersThis will give you access to everything that I have ever written. If you cannot use a credit card, please contact me directly to pay with crypto by responding to this email.In This Issue:Good Trades Vs. Bad TradesThe Bitcoin Whales Are Back - IntoTheBlockBitcoin Thoughts And AnalysisAltcoin ChartsLegacy MarketsChart RequestsTrading Tip - Not "Till Death Do Us Part"DeFi Hacker Begins Returning Stolen FundsMassive Car Insurance Company Adds Bitcoin To Balance SheetCrypto Banks Are ComingMessi Paid In CryptoHUMAN ProtocolThe Wolf Of All Streets Podcast Ft. Ran NeunerMy Recommended Platforms And Tools
The Wolf Den #306 - Good Trades Vs. Bad Trades
The Wolf Den #306 - Good Trades Vs. Bad…
The Wolf Den #306 - Good Trades Vs. Bad Trades
This newsletter is sponsored by PHEMEX, the world's best crypto exchange for both spot and leverage. Sign up with the link above and get some free Bitcoin and up to a $1200 bonus for depositing 1 BTC or more. I really encourage you to check them out.IF YOU HAVE ANY ISSUE WITH THE NEWSLETTER OR YOUR SUBSCRIPTION, PLEASE CONTACT: PREMIUMSUPPORT@GETREVUE.CODefining A Good Trade And Random ReinforcementThe goal of a successful trader is to make the best trades. Money is secondary. - Alexander ElderThe idea raised in this quote is essential and often misunderstood. If not by how much money is made or lost, what defines a good trade and a bad trade?A good trade should be defined as one where a trader planned their trade, traded their plan, and managed their risk — those are all elements they can control. It is NOT defined by the outcome. A bad trade, on the other hand, is where a trader fails to follow their rules and executes trades against their better judgment. This is always going to be a bad trade even if it happens to be profitable. Now let’s talk about Random Reinforcement, which is a rarely discussed reason that many traders fail.As defined by Investopedia, “Random Reinforcement” is:Using arbitrary events to qualify (or disqualify) a hypothesis or idea; attributing skill or lack of skill to an outcome that is unsystematic in nature; finding support for positive or negative behaviors from outcomes that are inconsistent in nature—like the financial markets. The market has a tendency to reward bad habits, while concurrently punishing positive behaviors, especially with a small sample set. Let’s take a theoretical example to display this principle.Bob wants to leave his job and become a crypto trader. He sets aside some starting capital, follows the markets and the “big names” on Twitter. He sees them talking about an altcoin, opens the chart, and sees that price is rising fast. He buys, goes to take a shower, returns, and sells for a quick profit. He does this again before lunch and strings together a few successful trades. Bob starts to feel confident that he is a talented trader. So, what is the problem? Bob is trading without a system or a plan and is being fooled into believing that a successful outcome on a few random trades is indicative of likely success moving forward. The market has rewarded his bad behavior. We know how this story ends — Bob continues to make impulsive trades and eventually loses his capital. There is a flip side to this coin. Let’s say that Bob learns his lesson and spends months developing a trading plan, complete with risk management, proper portfolio allocations, and trading rules.He identifies a trading opportunity that fits, takes the perfect entry, and… stops out of his trade. He tries again. And again. He loses 7 times in a row. The market is punishing Bob for his good behavior. Bob starts to doubt his system and takes a high-risk trade that violates his system — and is successful. To his surprise, he tries this a second time and also makes money. Bob is now back to square one, trading without a system because the market has rewarded his bad behavior and convinced him his old unsystematic method was profitable. Through random reinforcement, the market has re-conditioned the way Bob approaches trading by distracting him away from his trading plan. He has allowed himself to be manipulated into an impulsive, high-risk, revenge-based trading approach. This may work for the short run, but it’s a setup that always leads to failure.Even if Bob makes money in the latter scenario, he has taken a BAD TRADE.The bottom line? Judge yourself by your process, not the results - you cannot control what price does after you take a trade. If you remain ironclad in executing your system, over a long period of time, you will be profitable. This means if you’re just starting risk only 1-2% per trade in order to leave room for failure until you find your edge.To my free members (I love you!) - paid members receive emails like this at 5 times a week - Monday through Friday. Every Wednesday I chart any request sent by my paid members, often over 30 or 40 charts. It’s a ridiculous amount of work, but I do my best to add real value to anyone who subscribes. If you would like to join the paid side, you can do so for $15 a month here.https://www.getrevue.co/profile/TheWolfDen/membersThis will give you access to everything that I have ever written. If you cannot use a credit card, please contact me directly to pay with crypto by responding to this email.In This Issue:Good Trades Vs. Bad TradesThe Bitcoin Whales Are Back - IntoTheBlockBitcoin Thoughts And AnalysisAltcoin ChartsLegacy MarketsChart RequestsTrading Tip - Not "Till Death Do Us Part"DeFi Hacker Begins Returning Stolen FundsMassive Car Insurance Company Adds Bitcoin To Balance SheetCrypto Banks Are ComingMessi Paid In CryptoHUMAN ProtocolThe Wolf Of All Streets Podcast Ft. Ran NeunerMy Recommended Platforms And Tools