I'm going to read this in a few minutes. A large-scale war fought between August 206 BC and early 202 BC between the forces of the Sichuan Emperor Huang Yan and the Han Dynasty for power, historically known as the Chu-Han Contention, ended in a victory for the Han Dynasty, but throughout the entire campaign, the number of defeats for the Han Dynasty was far greater than the number of defeats for Huang Yan, but he won the crucial battle, which eventually laid the foundation for the Han Dynasty. Why talk about this story, in the financial markets, no one can be a winner all the time, and no one can say that they are a born-again superstar, whether it is Buffett, the god of value investing, or the financial giant, George Soros, their legendary people have failed at times, but so far they have been at the top of the industry.
Why?
I'm not going to say that I'm not.
In any transaction, the goal is always the same: profit.
In general, there are two types of progress:
1.不断提高交易的胜率
2.不断扩大自己的盈亏比
Win rate = win times × total deals times x 100%
As for the winning odds, I'm sure there's no doubt in my mind that I want to be profitable on every trade I make, and in a 1:1 win-loss ratio, when my winning odds are higher, my end result is naturally that I get more profit.
NO, there's also something, the existence of a profit-loss ratio. Every time I make money in forex trading, it always changes, maybe I win 50 points this time, win 60 points the next time, and lose 100 points the next time.
What is the gain and loss ratio?
Profit/Loss Ratio = Average amount won / Average amount lost.
Let's take an example: (not counting transaction costs)
Let's say a forex trader has a year of trading records that are as follows:
Total number of times 305
The total number of wins is 91.5 times.
All the times we lost were 213.5 times.
The average amount won is 35 (win = win, lose = lose)
Average amount lost 8.15
The total wins and losses = the total number of times you win * the average amount you win - the total number of times you lose * the average amount you lose = 91.5 times 35 - 213.5 times 8.15 = 1460
The winning ratio = all wins / total wins * 100% = 91.5/30.5 * 100 % = 30 %
The ratio of the profit and loss is equal to the average amount of profit/the average amount of loss is equal to 35 / 8.15 is equal to 4.3
What you can clearly see is that the trader has only a 30% chance of winning, but his total loss is still profitable because of the higher profit than the loss.
Let's look at another example:
The total number of times is unchanged, the number of wins and losses are matched, the average amount of wins and losses are matched.
Total number of times 305
All wins are 213.5 times
All the times we lost were 91.5 times.
The average amount won is 8.15 (win = win, lose = lose)
Average amount lost 35
Total wins and losses = all wins * Average wins - all losses * Average losses = 213.5 times 8.15 - 91.5 times 35 = -1460
The odds ratio = all wins / total wins * 100% = 213.5/305 * 100 % = 70 %
The ratio of the profit and loss is equal to the average amount of profit / the average amount of loss = 8.15 / 35 = 0.23.
It can be seen that even if the win rate is as high as 70%, if the profit is lower than the loss, then you end up losing.
So what is the win-loss ratio we need to make a profit?
The odds of winning and losing are slightly less than 1, but not too low.
The odds of winning are slightly less than 50, but not too low or winable.
Of course, there are also extreme goals.
The average amount won is greater than the average amount lost, and the number of times won is greater than the number of times lost.
Winning rates are an important aspect of real trading, but the question that cannot be ignored is that we are increasingly focusing on profit and loss ratios.
The investor will be deducted a transaction fee for each transaction. From the perspective of the investor, even if the probability of winning is 50%, 5 out of 10 trades are profitable, 5 trades are loss, the ratio of profit and loss is 1:1, if the weekly re-start of the trade, the investment funds are always in a decreasing negative sum game. The more trades, the faster the loss of funds.
In order to be successful in the ever-changing financial markets, you must first put in a lot of effort and practice in two areas: one is to increase the probability of profits; the second is to find the right profit-loss ratio.
In general, investors generally believe that setting the P/L ratio to 2:1 or 3:1 is a more reasonable option. If the P/L ratio is set to 2:1 (for example, 50 points for a profit, 25 points for a loss), this means that each profit can incur 2 losses (for each profit 50 points, 25 points for a loss).
In this case, long-term savings can be achieved as long as the winning rate is maintained at 33%, i.e. an average of 1 penny profit per 3 trades; long-term profits can be achieved if the winning rate can be raised above 33%.
Of course, the profit and loss ratio is a lagging indicator, and after you have done a lot of trades, you calculate what your profit and loss ratio is likely to be. Then you will know what your profit and loss ratio is likely to be. So we entered, it is difficult to guide with profit and loss ratio.
1: Please stop loss in time to control risk within a small range
2: Please increase profits
3: Please stick to a fixed percentage of current total capital (e.g. 3% to 5%) to control losses
4: Please stick to using a fixed percentage of the current total capital (e.g. 9%) to get a substantial profit, the specific profit and loss ratio varies from person to person.
(The article contains personal opinions, if there are any shortcomings, comments are welcome to be added..)
First of all, to correct a common misconception among former traders that a high winning rate is not the same as a profit?!
But the question is, why is it that a trading system with a high winning rate must be based on no stop loss or large stop loss? It is possible to achieve a high winning rate with a lower fixed stop loss! Of course, there is no trading system in the world that is exactly as people want, to obtain a high winning rate, it must be at the expense of profit and loss ratio, trading frequency.
Assuming a trading system with a 67% success rate (which, in my long-term estimation, is the basic success rate of a successful intraday trading system, with a 10% upward boost after later adjustment and filtering), in my personal experience, the optimal win-loss ratio for a high winning rate is basically 1:1, for a normal trading frequency generally around 10 orders per month (for simple calculation, record 9 orders), in which case 3 orders per trade, i.e. 2 successes per month, 6 successes per month, 3 failures per month, and a stable total gain of 75 points per month, according to the standard stop loss of 25 points.
You know what? The management of positions in fund management is based on balancing a reasonable profit rate!
This is the second misconception that I am going to correct, many people have been trading very light positions or very small positions for years, and after making a sustained profit for a while, or finally starting to make a profit, they think they have done it, they have succeeded.
But really? Ignoring the rate of return on capital is a failure even if you end up making a profit. 20% profit per year is good! But if you invest only $1,000, even if your system is stable, it would take 28 years to make $150,000. How old were you then?
So small-cap traders must aim for a high rate of return under leveraged trading conditions, otherwise everything you do will be pointless! Small-cap traders are hard, easy trading methods do not bring high rates of return, and to achieve high rates of return, you have to find unique trading methods, and you have to take a huge leverage risk to get high rates of return, which makes the heavy market the only way for small-cap traders to get to the first barrel of money!
Although there is no uniform standard, day trading should be considered a reasonable standard if the monthly average profit is 10% and the annual profit rate is 120%, then the profit calculation over 6 years can exceed $150,000.
Comparing the light and heavy positions in intraday trading with the traditional classic trading model of high profit and loss ratio, low win rate, medium frequency, according to the more standard model of profit and loss ratio of 3:1, the win rate must be maintained above 33% (three successful singles) in order to basically maintain the capital;
In actual day trading, a stop loss of 25 points is already a lower requirement to avoid the noise of market disorderly fluctuations, and there are friends who try to achieve a higher profit and loss ratio with a lower stop loss, such as a stop loss of 10 points, but such a stop loss space is easily swallowed by the market and therefore not accepted.
Then someone will say, I can choose a sample of a high-win rate system, easy trading, that's not nonsense, can you do a high win rate under standard stop loss, why do you still have to be easy?
The traditional classic trading model of high profit and loss ratio, low win rate, medium frequency, medium frequency is more reasonable for 1 single per day, then to calculate with 21 units per month, 14 units per month to fail and only 7 units to succeed, but in fact it is impossible to achieve, because the profit will be limited by the average fluctuation value, and long-term market noise, disorderly fluctuations, after all, the chance of reaching 75 points of profit in a short time is very rare.
The trading system that I have done with high daily profit and loss ratios, medium frequency, low winning rate is because the chances of reaching the standard profit and loss ratio are too small, even if I have flat-lined most of the trades that should have reached the standard stop loss, but the end result is that the capital return can only remain flat for several months in a row.
I would also like to emphasize that the biggest obstacle to day trading light positions, high profit-loss ratios, low win-rate, medium-frequency trading models is that it is difficult to maintain a stable mood in long-term holdings (in order to obtain high profit-loss ratios, most floating states require very long holding times, so the mood fluctuations in the holding process will make the holding very unstable);
Heavy positions, low profit/loss ratio, low frequency, high win rate, low profit expectations shorten the holding time, profits are easy to achieve, low frequency helps to focus attention, high win rate helps to increase trading confidence, and finally heavy positions can increase the actual profit, due to the presence of a lower fixed stop loss, allowing the risk to be controlled and making the profit more stable.
Similarly, $50,000, light position trading according to a loss of 25 points not more than 2% of the capital is calculated, then you can open a trade of 4 hands of euros, heavy position trading according to a loss of 25 points not more than 12% of the capital is calculated, then you can open a trade of 24 hands of euros; not to mention the various serious obstacles in daytime light position trading, according to 21 orders per month, win rate of 33%, profit and loss ratio of 3: 1, resulting in a monthly profit rate of 14%. What if the profit rate is lower than 33%?
This is a problem that exists in practice, in the real world, a day trading system model with a high profit-loss ratio usually has a win rate of less than 33% and a theoretical average profit-loss ratio of less than 3:1, but the profit-loss ratio of actual trades can be increased to more than 3:1 through experience, but the increase is not a profit, but a reduction in the average loss.
Therefore, in the face of severe difficulties, the monthly earnings that can maintain a profit rate of around 5% is already a very significant achievement, and I do not believe that successful day-to-day traders can be found.
In the case of the Japanese heavy trading, the ratio of profit and loss is 1: 1, the win rate is 67%, the monthly trading rate is 9 orders, for a monthly profit of 75 points for a $ 50,000 24 hand euro dollar trade, the actual profit of $ 18,000, corresponding to a capital gain rate of up to 36%.
If the monthly profit ratio is 18%, it takes only 4 years and 4 months for a small-cap trader to reach the goal of $150,000 if he starts at $1,000; if the monthly ratio is 36%, if a small-cap trader starts at $1,000 and then only takes 3 years to reach the goal of $150,000, is that not enough growth?
This article was originally published by WeChat Publications.
dash.yuanI'd like to ask you, how do you calculate the odds of winning the platform retest?