Everyone loves a big winner. It’s why so many folks are attracted to the markets in the first place.
Whether it’s doubling your money on a stock or pulling a triple-digit return out of an option trade, those kinds of returns grab folks’ attention. Because if they pay off, they can transform your trading account in a single hit.
But betting on rare, high-payoff trades isn’t a reliable way to trade, especially when those trades don’t come along often.
That’s why I take a different approach. Instead of chasing the occasional big winner, I often aim for smaller profits. I look for trades where I believe the odds are firmly in my favor.
Some folks won’t find that particularly exciting. But here’s the thing…
The size of an individual winning trade tells you very little about how profitable a strategy will be over time. What really matters is how often you win, how much you make when you’re right, and how much you lose when you’re wrong.
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For Jeff Brown and Larry Benedict's First-Ever On-Camera Trading Session. On Wednesday, November 11, at 8 p.m. ET, hedge fund legend Larry Benedict will trade his own money on camera. He has a 91% win rate with his new strategy, with an average hold of two days. Every attendee gets four never-before-shared “Penny Tech Trades” free. But according to our records, you have not yet claimed your spot. Click here to add your name to the guest list instantly. (When you click the link, your email address will automatically be added to the event guest list.
Imagine a strategy where you make $100 on every winning trade but lose $400 on every losing trade. At first glance, that might not sound appealing.
But suppose we win 85 out of every 100 trades. That would generate $8,500 in profits minus $6,000 in losses for a $2,500 net profit before trading costs.
That win rate makes all the difference. If that win rate slips to 80%, those profits disappear entirely. A further drop to 75% results in a $2,500 loss.
So you can see just how important the relationship is between your win rate and the average size of your wins and losses. It’s a trading concept known as expectancy – essentially, it’s about how much you can expect to make or lose on average each time you place a trade.
And it’s something many traders overlook. They become so focused on how much they could make on the next trade that they give little thought to how the numbers stack up over dozens or even hundreds of trades.
What’s more, even if their account is already down, they might keep swinging for the fences in the hope that a big trade pays off. But more often than not, that big winner never comes.
Trading is not just about winning. The objective is to win often enough that your gains comfortably outweigh your losses.
It’s an approach we use in my Prediction Profits service. We trade event-based contracts such as whether WTI oil or the S&P 500 will close above a certain level tomorrow.
We’re not looking for the biggest potential payout. Instead, we accept a relatively modest return on a trade where we believe the odds are strongly in our favor.
Of course, there are no guarantees in trading. Even a seemingly straightforward outcome can produce an unexpected loss.
But bagging smaller wins consistently can really start to add up. Prediction Profits has had 11 wins from 12 closed trades since launching in June.
The key point is that you don’t need to hit the jackpot to become a successful trader.
Because ultimately, it’s not the size of your biggest winning trade that matters. It’s how much profit you can consistently generate that delivers the biggest payoff over time.
Want to see how to do it in action? Join me for the Penny Tech Profits event on Wednesday, November 11, at 8 p.m. ET.
My colleague, tech expert Jeff Brown, is linking up with me to demonstrate exactly how we can use prediction markets to target some of the most exciting technology plays. We’ll even trade on camera, so you can see how it all works firsthand.
I hope you’ll join us. All you have to do is RSVP with one click right here to attend.
Happy Trading,
Larry Benedict
Editor, Trading With Larry Benedict
Reading Trading With Larry Benedict will allow you to take a look into the mind of one of the market’s greatest traders. You’ll be able to recognize and take advantage of trends in the market in no time.
