The Anatomy of a Good Trade.
Recently a student asked me what a “good trade” was. You would think that the answer would be simple. Profitable, right? Well, profitable may not always be the answer
and is not necessarily always true. You see, sometimes we enter trades that go against us and we get stopped out. If we get stopped out, does that mean it was a bad trade? As long as we make calculated stops and follow our trading plan then I say no, it’s not a bad trade. In fact, it’s a good trade.
There are a number of key components that go into a good trade. Ultimately, we all want to profit but at the end of the day but that’s not always the reality. There have been plenty of times I've done all my pre-trade research and waited on a great setup only to get filled and washed out of my trade. It happens. It’s part of the business of trading.
It’s important to understand and remember that as long as you’re following your system (risk management included) even if you’re stopped out, it can be categorized as a good trade. If you put on a position and get hit with a 2% stop that means you’ve saved 98% of you trading capital. That sounds like a good trade to me! Remember that the at risk capital you put up, the 2%, is what you pay to see if your trade analysis is correct and plays out.