How to Stay Ahead of 99% of the Investors | MATH Behind Entry & Exit | Weekend Investing | Alok Jain

Added: 2026-05-22

[00:00:01]Hi folks, today [snorts] we have a very interesting discussion about the math behind entry and exit for any strategy.

[00:00:07]So, stay tuned till the end of the video to understand all the concepts that are being explained here. Disclaimer as always, please read fully and only then move forward in the video.

[00:00:17]So, what is the problem that exists in most portfolios and most investors' mind is that you are more afraid of being wrong than you are of dying.

[00:00:29]So, the eventuality of, you know, our life coming to an end is not something that we are afraid of.

[00:00:35]But, we are afraid of this one trade that we are currently doing that may go wrong.

[00:00:40]Can you see the contrast of, you know, our depth of worry about things uh that are presented in front of us.

[00:00:51]So, the whole idea is that, you know, our degrees and PhDs and our expertise in the market is not going to save us in the market because we are always stuck with some kind of a ego trap wherein we are our brain is hardwired that, you know, if you're doing something, it has to be right.

[00:01:12]It can't be wrong.

[00:01:14]And that impulse that the brain gives you basically does not allow you to accept that sometimes you will need to be not right to really walk that path.

[00:01:30]Um this ability to accept failure as we go along, I think is the right sort of uh mindset that is required for a good trader or a good investor from that perspective because then you are allowing some uncertainty to be a part of the process. You are allowing some uh uh some steps to be not so certain about what is going to happen in your mind. And and you're saying it's okay if you know if I if I'm right so many times and I'm wrong so many times it's still okay. That that realization and perhaps a acceptance is very very important in any investing or trading journey.

[00:02:16]So today we will not learn about how to trade stocks, but we learn about how to uh you know trade with your mindset in such a way that you're learning as you go along.

[00:02:30]Uh the trading trinity as it is called is basically this three-pointed triangle where there's a method there's you as in the mind and then there is money uh or you can call it money management and that trinity basically when it comes together results in profit.

[00:02:50]Uh so we'll we'll do a deeper uh dive into this, but this is basically the key for success in in in any trading or investing format.

[00:03:00]The key one of the keys here is of course the methodology.

[00:03:04]What is your edge?

[00:03:06]Is there a technical edge that you have in your trades versus the rest of the market?

[00:03:13]Most of the market players focus on this only that if I'm able to get my methodology right then everything else falls into place, but that is not the case. Methodology is important but that is only one part of the triangle that needs to be right. Money management is very very important where you need to survive using the math of you know if you have subsequent uh successive losses how do you recover from that? Where do you exit? Where do you do position sizing? Uh how do you concentrate? All that comes in this money management part. And then perhaps the most neglected but but the most important part is the discipline of your mind, which is basically self-management. How do you control your mind? How do you control the discipline of the mind?

[00:04:06]So, if the if you go to the math of the edge, the math of the edge is that you don't need to be right all the time.

[00:04:14]You can be wrong even 60% of the time and still have significant gains in your portfolio.

[00:04:21]So, this uh disease of, you know, I want to be right in every transaction that I do, every investment that I make should go right is the cause of poor decision-making at some point later on.

[00:04:34]So, the positive expectancy that we have, uh you know, the average amount that you can expect to win or lose per trade over a large series of transaction, uh that is not the that need not be in the high 80s or 90s or or 100% and we'll not get into the actual math formula for this, but the whole idea here is that you may lose more times than you win, but you have to lose smaller when you lose and you have to win bigger when you win.

[00:05:07]So, for a small example, you are doing 100 transactions in a year, you win only 40 times.

[00:05:14]60 times you're losing. But whenever you're losing, you're losing $500.

[00:05:18]Whenever you're winning, you're making $1,500. Overall, when you will put this together at the end of the year, you will make a handsome amount of money.

[00:05:26]So, despite losing more, you are winning here.

[00:05:30]Right? So, why this matters? Because the win rate most investors or traders don't want to lose at all.

[00:05:39]Any trade that they do, if it goes into loss, they beat themselves up that why did I take this trade?

[00:05:46]This trade should have been thought about in a better way?

[00:05:49]We should not have entered this.

[00:05:51]All these thoughts basically reduce your own confidence in whatever you're doing.

[00:05:58]By not accepting that, you know, that was part of this. That was good that was anyways a part of this. That is part of the journey that you have to go through.

[00:06:07]So, you know, to not accept those losses as integral part of the trade itself is wrong.

[00:06:16]And perhaps that is the reason where, you know, few losses, few down moves, few months of losses causes people to just leave that edge that they actually have uh by you know, thinking about it is that that that the probably the edge is lost.

[00:06:37]Um Many of the bigger traders, the best trader Jim Simons, other Paul Tudor Jones, many names I can give you.

[00:06:48]They never focused on the win rate. They always focused on even if they are making 30% of the trades good, 70% are scratch trades. Those 30% trades will win such large amounts, three, four times more than the losing ones, then that the expectancy game comes together.

[00:07:08]So, a system with positive expectancy allows you to endure losing streaks. So, if you're losing like the five trades in a row, the positive expectancy along with proper money management will make sure that you don't you are not chucked out of the game. As long as you don't get out of the psychology of you know, this we've had five losses, let's chuck the strategy.

[00:07:36]That should not be happening. Right?

[00:07:39]Multiple strategies should be used which can be based on different time frames, different asset classes. Um because every type of strategy does not suit everybody.

[00:07:54]So, when you will try a few different things, some people are very good at very short-term trades. Some people are very good at very long-term trades. Some people don't like to have stocks, you know, sit idle for months together in their in their portfolios doing nothing. So, there are all kinds of um expectations that can be matched your uh sort of psychology. And that you need to fit by trying everything.

[00:08:22]Even in a winning system, you will get losing streaks. What is a losing streak? Where you have successive losses.

[00:08:29]Let's say you have a system which says on average you will do 50% right, 50% wrong trades.

[00:08:35]So, in your mind you're thinking, you know, if I do 10 trades, five will be right, five will be wrong. But that's probably in real life that may happen in such a way that, you know, 10 trades you may get losing together and then the next 10 may maybe winners as well.

[00:08:49]Right? So, the math of ruin basically is this that if you concentrate, if you don't do position sizing, you if you bet, let's say 33% on every trade, then in three losses and if you don't successively bring the uh position down, I mean, you will get out of you'll run out of money in in few trades.

[00:09:10]So, you need to see what is the mathematical sort of impossibility that if I'm betting 2% per trade and if I get five trades in a loss in a row losses, seven trades, 10 trades, then you can do a lot of simulation and testing on that. You need to s- preserve your capital even if you have a losing streak because staying alive is most important for the investor to come back.

[00:09:36]Um the math will come in your favor, but you need to stay alive while the math is uh going against you.

[00:09:44]Then there is another sort of enemy within us where anytime we have a winning streak, we have one, two, three winning trades, our brain starts to pump out, you know, hormones that make us feel invincible.

[00:09:59]You know, I've I've clock I've I've really uh hit this strategy for a six. Now I know what to do.

[00:10:06]So next time I get the same setup, I'm going to bet my house on this because this is now uh something that I think that I can't can't can't lose. And that's exactly where the biggest losses will come.

[00:10:18]So whenever you will bet the house on a single trade or much larger than what you were going to do as per your math, it is almost a certainty that you will lose out in that attempt.

[00:10:32]Uh that's our biggest enemy. So the correction here is about how to handle wins. First you were talking about how to handle losses, but handling wins is also equally important. You should not allow these wins and losses to become an emotional roller coaster for you.

[00:10:51]You should watch it from a distance. You are like a third party watching yourself trade and say, "Okay, Alok is doing these 100 trades. He's lost 40 or 50 or 60, but he's made 40. But in the 40 that he's doing, he's doing well. He's making two X of the losses."

[00:11:10]Observe the or observe the trader with a bit of a bit of detachment.

[00:11:18]Uh where a winning trade does not give you a high of a uh you know, that uh rush in your mind that I've done something really great.

[00:11:27]You're following a system. You know some will go right. You know some will go wrong.

[00:11:31]You are just you know, allowing it to happen as per the strategy. There is no euphoria if you are winning, there is no sadness if I'm losing. I know this is a part of the uh game going forward. So, the example here is that of a rich dentist.

[00:11:47]Uh I mean, he's doing a root canal here.

[00:11:50]What is he focusing on? How much money will I make from this process?

[00:11:54]Or have I, you know, been able to charge this client $5,000 for this uh trade for this uh procedure? No. He's just focused on the perfect execution of the process of doing the root canal.

[00:12:09]He knows if I do this right every time, there will be a line of patients outside for of my clinic automatically, and that automatically makes me money.

[00:12:20]So, if you are executing your process and trade, it could be investments, perfectly as per your plan, money is like a side effect.

[00:12:30]So, don't focus on the money part, which unfortunately a lot of focus is there uh before you start the trade. A lot of people will think about how much money this trade will make. This trade is a part of your longer strategy.

[00:12:44]It has come it has it has been made available to you by the system because you were focused on finding certain setups. Take the trade without any expectations.

[00:12:55]Of course, with your rules set that trade goes right, I will do this. If trade goes wrong, I will do this. So, making discipline a physical muscle, wherein you are just following it to the T.

[00:13:08]And they say, I mean, I'm not sure how true this is that if you follow your plan perfectly for 13 transactions, then it becomes like a muscle memory, and then the magic happens. The pathway is built. You no longer have to force yourself on that uh on that path, it will happen automatically.

[00:13:26]So, it will basically just be a very natural way of how how you're progressing in your journey. And so, basically, you are not too far from uh where the great traders and investors are.

[00:13:41]What are the great traders and investors doing?

[00:13:44]They are able to create a discipline of executing a simple and effective strategy, which is not any secret. Like people are running after, you know, I let me try to find the holy grail.

[00:14:00]What strategy's going to make me, uh you know, so much money?

[00:14:04]None of that exists. Normal simple strategies make you money, but the discipline that you need to put into any simple strategy is the reason why most traders will not get there.

[00:14:18]So, let us know in the comments how you liked, uh this, uh discussion about the psychology, the math, and the edge of your trading system.

[00:14:30]What role does discipline play in your investment journey? Do you buy or sell based on others' recommendations? Do you, uh and there can be a discipline in that also. Like, uh you know, there are famous investors who do just mirroring of other investors. If you're able to do if you know what some successful investors are buying or selling and you know it and you're doing exactly that, that is also discipline.

[00:14:57]But, mostly it is difficult to do because that is borrowed conviction. You need to find your own conviction in your process and in your discipline.

[00:15:06]So, let us know in your comments what thought process you have about, uh this subject. If you want to follow some model portfolios, uh we have a link in the description.

[00:15:17]You can go check them out. Uh and certainly, do share this video with your friends and family who are into trading or investing and do not have a process, do not have a proper way of looking at the markets.

[00:15:30]Share with them. Perhaps this will change uh their approach towards the market or at least make them think what they may be doing wrong or what they're doing right.

[00:15:40]Do subscribe to our channel as well.

[00:15:41]Thanks. Bye.