The 4 types of speculative trades are:
1. Good bets
2. Bad bets
3. Winning bets
4. Losing bets
So which of these is the key to profitable trading?
The goal is to make: Good Bets.
- Bad Bets are just bad, stupid, emotional bets that you have no business with.
- A Winning Bet just means you made money, it can still be either a good bet or a bad bet.
- And Losing Bet just means you lost money, it can still be either a good bet or a bad bet.
Manage risk. And make good bets. Make good bets. Make good bets.
“There are really four kinds of trades or bets: good bets, bad bets, winning bets, and losing bets. Most people think that a losing trade was a bad bet. That is absolutely wrong. You can lose money even on a good bet. If the odds on a bet are 50/ 50 and the payoff is $ 2 versus a $ 1 risk, that is a good bet even if you lose. The important point is that if you do enough of those trades or bets, eventually you have to come out ahead.”
-Larry Hite, via Jack Schwager, Market Wizards (Amazon)