Measure What Matters – Part 2 Lucrative Trades

I know that many of you think that I must be crazy to make the claim that 100% of all your trades can be lucrative. We do this by defining lucrative in a way that you can control each and every trade, so that it is a winner.

Let me explain how this works and why it is so important.

Prospect theory tells us that our brain is designed to experience twice as much pain as gain for the same dollar value amount won or lost. Think about that for a minute!

Because of this, we as traders naturally try to avoid the pain of loss. This avoidance creates a number of behavioral issues so that even when we have a statistical edge, we still experience losing trades.

With our current understanding of neuroplasticity, we know that we can rewire our brain to be more supportive of our trading activities. However, rewiring such a fundamental part of our survival brain is a lot of work.

So why do all this work when there is an easy workaround - that is measuring what really matters: our execution of Lucrative trades.

A lucrative trade consists of ALL of the following.

1. Preparations: We have completed our preparations for trading. We have completed all of the routines needed, in order to maximize our state of mind, and eliminate external noise that can negatively impact our trading. We have also completed all of the steps needed for our analysis. 

2. Mindset: We are in a Master Trader state of mind, with our SET score in the acceptable range. We can trust that we are in rapport with ourselves and the market.

3. Execution: We enter, manage and exit the trade according to our plan. Applying hard mechanical rules where they are clearly defined, and applying discretion in other areas where discretion is clearly defined. 

If any one of these factors is not part of a trade, it is a lousy trade. It doesn’t matter if it made money or lost money. It is lousy.

This next point is critically important to understand.

These three criteria are all under your control. All of them. I am going to repeat that. These criteria are ALL under your control. Thus, you can achieve 100% Lucrative trades. This is the biggest win a trader can achieve and it is the true path to trading mastery.

This is so important because of how the human brain interprets loss.

Imagine for a moment that you took every available Lucrative trade according to your plan. No revenge trades, no emotional "gut feeling" trades, no fear-based trading decisions, chasing the market, moving stops, over and over. I am going to give you a moment to consider what this would be like before I ask the next questions. 

Do you think this would this improve your trading?  

Ok great, now let me ask you this. If you only made Lucrative Trades during the last year, could you achieve your trading goals this year?

If you take the statistics of just your Lucrative trades, you might come up with numbers like these.

What this means is that EVERY lucrative trade you make is worth $125, profitable or not.

So, even if a particular trade is unprofitable, you know that it is still worth $125. It is a winner! Every lucrative trade is a winner.

In addition, by tracking our Lucrative trades separately from our non-lucrative trades, we can develop a clear understanding of where our strategy may need improvement and where our execution needs improvement.

This is critical to give us the clear feedback we need, so we can continue to progress as traders without getting lost in the noise. 

I can also tell you that more times than not, our traders actually discover that they are simply not living up to their potential. As a matter of fact, many traders often discover that if they knew how to trust themselves, they could be consistently profitable very quickly.

These are real examples from one of our Boot Camps where traders track the P&L of their Lucrative trades vs. their impulse, revenge, boredom, or anxiety trades.

And as you can see, we are not talking about a small margin of difference here. 

We're talking about a massive increase in edge. We're talking about moving traders out from the red and deep into the green. 

Many of us have attached a lot of importance to becoming a successful trader. For some of us it is improving our lifestyle, for others it is making retirement possible, for others it is to prove our worth to ourselves and to others in our community. 

As a result every tick in every trade either for us or against us becomes a referendum on our dream. 

This pressure makes it very difficult to have a master trader mindset while we are trading. As a result we repeat the same trading mistakes over and over again.

If however, we see that every trade we make is Lucrative, then the feedback comes from our execution of our knowledge skills and behaviors, which are 100% in our control.

This is important! It allows us to avoid the pain of loss in our survival mechanisms, and to feel the joy of success with every trade we make. The data shows that the better we get at doing this, the more this translates to an improved bottom line.

If you've tried all sorts of strategies, courses, gurus, indicators and trading rooms to no avail, training the pattern recognition powerhouse between your ears to build a master trader mindset may just give you the edge you've been looking for.

The next measurement is a step beyond Mindset and Execution. It drills down into our problems and issues to arrive at what we really want: Our desired trading behaviors.

We'll cover this in the next article in our 3 part Measuring What Matters series!

**Mind Metrics is included in the Compass 3 Premium Edition course