5 Fundamental Trading

Truths to Live By
A Deep Dive & Actionable Steps to Follow
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Introduction

Welcome, trader! The trading world is an exciting journey filled with opportunities to learn,
grow, and potentially achieve financial freedom. However, it's also a challenging endeavor
that requires discipline, a strong understanding of the market, and a solid foundation in
trading truths.

This short e-book will explore five fundamental principles that successful traders rely on.

1. Execution > Analysis

2. Probabilities > Certainty

3. Process > Outcome

4. Risk:Reward > Win Rate

5. Exit Strategy > Entry Point

By embracing these five trading truths, you can develop a more disciplined and successful
trading approach.

Remember, the journey is just as important as the destination. Embrace the learning
process, manage your risk effectively, and cultivate the patience and consistency required
for long-term success in the ever-changing markets.
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Execution >

Analysis

The Scenario

You've identified one of your setups in the price action. Your data tells you this setup has a

great win rate and small losses, but you've hesitated on your entry and now the setup is

playing out without you. This causes you to have FOMO (fear of missing out), making you

chase the trade, resulting in a loss and frustration.

What you can do

Develop a setup with a clearly defined entry and exit points

Once your strategy signals a trade, trust your analysis and execute decisively

Don’t chase trades. Remember, there will always be more opportunities. The market will

be here today, tomorrow, months from now, and years from now.

The Takeaway

While thorough analysis is essential, it shouldn't lead to paralysis by overthinking. The most

common reason traders often hesitate is because they are not confident in their setup. If you

have the track record that shows your setup is profitable, then don't hesitate and execute. If

the trade doesn’t work out in your favor, then your risk management strategy should save

you.

However, if your track record shows your setup is unprofitable, then hesitation is reasonable

and the focus should shift towards improving your setup by backtesting entry & exit

strategies.
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Probabilities >
Certainty

The Scenario

You’ve done your homework: backtested your strategy, tweaked it to create the best results
possible. You've built confidence and you’re finally ready to test it on the live markets. But
first trade in and it fails. Second trade still did not work in your favor. This leaves you
confused. “This strategy has an 84% win rate when I was backtesting!”

What you can do

Backtesting your strategies is a great way to identify whether your strategy has a high
win rate and a positive risk-reward ratio. However, even after you’ve developed such a
strategy, nothing is really ever guaranteed
Accept that every trade involves probability. You might not win every trade using this
approach. However, if the strategy historically shows a 70% win rate with a 2:1 risk-
reward ratio, the potential rewards outweigh the occasional losses in the long run
You still need to utilize risk management techniques like stop-loss orders to limit your
potential losses.

The Takeaway

There's no guarantee of success in any trade. The markets are inherently unpredictable, no
matter how long you’ve tested a strategy or how high its win rate is. Understand that losing
trades are inevitable. Don't chase losses or trade emotionally in response to them.
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Process >
Outcome
The Scenario

You follow your trading plan diligently, but the market still moves against you. You get
frustrated. You think the hours and effort you spent building a trading plan is useless. You
want to scrap your whole approach and chase a “magic strategy” that promises instant
wins.

What you can do

Regardless of the outcome (profit or loss), make it a habit to analyze each trade after
execution. This ingrained practice helps you identify patterns, assess your decision-
making process, and pinpoint areas for improvement
Celebrate your successes by recognizing instances where your strategy worked as
planned, your risk management protected your capital, and your discipline held strong.
This reinforces positive behaviors and builds confidence
Identify areas for improvement. Did you deviate from your plan? Did emotions cloud
your judgment? Analyze the "why" behind these missteps and work towards eliminating
them in future trades
Discipline is paramount when navigating the dynamic market environment. While losses
can be discouraging, avoid the temptation to abandon your trading strategy based on
short-term results.

The Takeaway

Instead of blaming your strategy, analyze the trade setup, execution, and risk management.
Learn from it and adjust your approach if necessary, but maintain your core strategy. Don't
get discouraged by short-term losses or overly excited by single wins. Instead, focus on
consistently following your trading process and making well-informed decisions based on
your strategy. Remember: The only real loss is when you deviate from your process.
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Risk:Reward >
Win Rate
The Scenario

You're glued to the screen, watching every tick. Each winning trade feels amazing. Your win
rate is soaring, but your account balance isn't growing much. Uh oh, maybe you're risking
too little per trade to make real profits?

What you can do

Determine your risk tolerance and set a maximum allowable risk per trade. A common
starting point for beginners is 1-2% of your total trading capital. This ensures a single losing
trade doesn't wipe out your entire account. As you gain experience and confidence, you
can adjust this percentage based on your risk tolerance and trading strategy
Calculate the potential profit and risk for each trade based on your entry and exit points
Adjust your position size accordingly to maintain a balanced risk-reward ratio. Ideally, your
potential profit should outweigh your potential risk. For example, if you aim for a 2:1 risk-
reward ratio, you would need to risk $1 to potentially earn $2.

The Takeaway

A high win rate can be deceiving. It can be a positive indicator, but it shouldn't be the sole
focus. A strategy with frequent small wins but occasional large losses can quickly deplete
your capital, even with a high win rate. Imagine winning 60% of your trades but losing an
average of $100 on losing trades, while only winning an average of $20 on winning trades.
Over time, this strategy would erode your capital despite the high win rate.

It's more crucial to prioritize the potential profit on winning trades compared to the risk you
take on losing trades. Aim for a strategy with a good risk-reward ratio (e.g., 2:1 or 3:1), where
the potential profit outweighs the potential loss.
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Exit Strategy >
Entry Point
The Scenario

You spend all morning waiting for the ideal setup, indicators aligned just right. The trade
explodes higher. Greed kicks in. “I’ll hold a little bit more!” and you ignore your exit strategy.
The market stalls, then dips. Just like that, you lose all profits.

What you can do

Develop clear exit criteria for your trades, including profit targets and stop-loss levels
Don't let emotions dictate your exit decisions. Stick to your pre-defined exit points,
regardless of whether the market is surging upwards or plummeting downwards
Consider trailing stop-loss orders. This protects your profits while allowing you to
potentially capture further gains if the trend continues
You may also consider scaling out as an option. Here's how to implement scaling out
Divide your total position size into smaller units
Exit a portion of your position at your first profit target
Leave the remaining position open, potentially with a trailing stop-loss to manage
risk.

The Takeaway

Many beginner traders prioritize the perfect entry point, neglecting the crucial aspect of an
exit strategy. Knowing when to exit a trade helps you lock in profits and limit losses. 

By internalizing and applying these trading truths, you can develop a more disciplined and
well-rounded approach, increasing your chances of success in the ever-evolving world of
markets. Remember, trading is a continuous learning process.
The world of trading offers immense potential, but it demands a combination of discipline,
knowledge, and the right tools. This e-book has explored five fundamental truths that will
guide you on your trading journey: prioritizing execution over overthinking, embracing
probabilities, focusing on process, prioritizing risk-reward over win rate, and establishing a
solid exit strategy.

Now that you're armed with these essential trading truths, TradeZella empowers you to take
your trading to the next level. Here's how TradeZella can be your one-stop shop for
success
Effortless Journaling: Say goodbye to tedious manual entries. TradeZella automatically
captures your trades, allowing you to focus on analysis and insights. Our extensive
notebook feature provides a space for detailed notes and reflections
Actionable Insights: Gain a deeper understanding of your trading behavior with in-depth
statistics, metrics, and customizable reports. Identify your strengths, weaknesses, and
areas for improvement
Learn from Every Move: Analyze every trade in detail with our trade replay function.
Revisit your past decisions, identify missed opportunities, and optimize your strategy for
future success
Backtesting Made Easy: Test and refine your trading strategies before risking real capital.
TradeZella's backtesting functionality allows you to evaluate the performance of your
strategies under various market conditions
Playbook Perfection: Develop and track the performance of your trading strategies like a
pro. Create custom playbooks within TradeZella, monitor their effectiveness, and
continuously optimize your approach.

TradeZella is more than just a trading tool; it's your partner in achieving your financial goals.

Sign up for TradeZella today and embark on your trading journey with confidence and
clarity. Remember, the market awaits – and TradeZella is here to equip you with the
knowledge and tools you need to conquer it.

www.tradezella.com | @tradezella