Everyone knows that a good trading strategy is essential for success in the stock market. It involves a set of patterns that work with a probability, say, above 50%, and the right profit-to-loss ratio. The percentage of successful trades often correlates with this ratio — and can sometimes even be below 50%.

You wait for your pattern to emerge and open a position based on your chosen profit-to-loss ratio. But think about it: could something else be necessary? If you agree, leave a plus in the comments; if not, a minus. And if you share your reasoning, I’d greatly appreciate it.

I often revisit this topic, exploring it from various perspectives. Recently, I discussed that the market shouldn’t have “gray areas,” meaning situations where you don’t know how to act. While predicting everything is impossible, you must know exactly how much you stand to lose when such situations arise. This loss shouldn’t devastate your account or demoralize you. Achieving this is possible by eliminating gray areas, which I believe is a prerequisite for entering the market.

In any business, you must clearly understand what will happen from point A to point B and how much you’ll earn. However, the market is in chaos. So what should you do?

Here’s a simple formulation: you need to know where a movement starts and ends. If this is clear, things become straightforward: the start of an upward movement, its end, the start of a downward movement, and so on. But the challenge is that this sequence isn’t always consistent.

It’s crucial to establish a “norm,” defining what constitutes a proper market movement, and to outline exceptions to this order. Additionally, you need rules for handling these exceptions.

An example of such an approach is Eugene Fama’s Efficient Market Hypothesis. It comes with a lengthy list of anomalies—instances where the market doesn’t behave as expected. Nevertheless, Fama successfully describes the market as a whole, with anomalies merely extending his hypothesis.

In trading, many failures arise from ignoring anomalies. We chose the “correct market,” assuming it should always behave a certain way. When something goes wrong, we search for a new rule, forgetting the old one. Yet, as the market evolves, so does its behavior. We find ourselves in the same situations without identifying how the market transitioned from correct to incorrect or defining actions for an “incorrect” market.

My advice is simple: don’t change your rules. Learn to spot anomalies and create strategies for them. The more anomalies you’re familiar with and know how to navigate, the better your chances of success. This is what we call experience: not just knowing anomalies but also having plans and practical skills to manage each one. Achieving this takes time and money.

This is just my opinion, and you’re welcome to disagree, especially if you know a shorter path.

Best regards.