Hello trader,
When it comes to trade execution, risk, position sizing, and targets, most of what I do in trading sticks to the math and the statistics.
You might think there’s no room for perspective in a numbers-driven process, but there absolutely is.
It just tends to show up after the fact, in how we interpret what already happened.
Before I get into what that means for trading, let me tell you about a video I saw that made me rethink perspective entirely.
In this clip, someone was visiting Disneyland, standing at the wishing well beside “Snow White.” The person tossed in a coin and said earnestly to the princess, “My wish is that you never eat another poison apple again.”
If you know the 88 year old Disney classic, you know how the Evil Queen disguises herself and offers Snow White a poisoned apple, one that sends her into what looks like death, or at best a deep coma.
The Prince arrives, kisses her, she wakes up, and they live happily ever after.
The person making the wish clearly meant well. But Snow White’s response was the twist:
“What do you mean poison apple? Everyone wants me to not eat apples, but I like apples. In fact, a sweet old lady gave me a wishing apple. When I took a bite, I fell asleep, and when I woke up, my prince was there. The wishing apple worked.”
Snow White had no idea about the Evil Queen’s murderous plot. All she knew was that she made a wish, took a bite, and got the outcome she wanted.
From where she stood, everything was perfect.
We Do the Same Thing in Trading
What looks positive from our perspective can look entirely negative from someone else’s.
A drop in a bullish market might be exactly the profitable trade we were hoping for, while someone else is watching that same drop eat into their retirement account and their 401(k).
We might also credit a winning trade to our own skill at picking direction, when in reality some report or tweet just happened to hit while we happened to be in the position.
That kind of perspective convinces us we’re better traders than we are, when really we were fortunate to be in the right trade at the right moment.
The opposite happens too: we apply a negative perspective to things that were actually neutral, or even helpful. We get upset at the market for stopping us out, as if we were personally targeted, even when price hit our stop to the penny.
Our perspective feels like we were mistreated by the market.
But the reality is that the hundreds of times a stop kept us from losing more, or the trades that hit target cleanly without ever testing our stop, vastly outnumber the rare cases where a stop got hit and price then reversed in our favor.
We fixate on the wrong part of the story. Our perspective frames the stop as something that harmed us, instead of something that protected us from a loss bigger than we were willing to accept.
The Common Thread
Notice that every example above is doing the same two things: judging the outcome after the fact, and using only the result itself, nothing else, to shape the perspective.
Snow White never stopped to consider that she didn’t actually get her wish granted, or that she’d technically died.
She got her prince. That’s all that mattered to her.
Trading works the same way. We’ll always have a perspective, but we owe it to ourselves to evaluate what happened, and why, rather than judging by the result alone.
Did I follow my rules? Was my stop placed correctly?
Even if I won, was the process consistent enough that I can repeat it? Even if I got stopped out and price reversed in my favor afterward, was that actually the right stop, or does my risk management need adjusting?
These questions matter far more than any perspective built on the bottom line. If we win and don’t understand why, we have no real ability to produce more wins, at least not consistently.
And if we lose and stay angry at the market for stopping us out, we’ll never ask the harder question: was the stop too tight, and does the rule itself need to change?
Perspective will always creep in. The job is to make sure it doesn’t replace the analysis.
Blake Young
Senior Market Strategist, TheoTRADE
