The definition of stable profit is long-term sustained overall profit.
Everyone can think that if I have a 100% winning rate, wouldn't it be a stable profit? This is possible. This kind of thinking only needs to ensure that it is never possible to liquidate the position to make stable profits. For example, if you buy a stock without leverage and don’t make a profit or sell it, it can also make a stable profit, but you may one day encounter a stock that will hold you back for 100 years; fixed investment in funds also belongs to this kind of thinking; generally, the profitability of this kind of thinking is relatively low. Less.
In fact, what we want is stable profits. 100% winning rate and using leverage (the 100% winning rate here refers to not only the history but also the future) can only be done by gods. We will inevitably encounter failures, so we must ensure that we will never end our trading career because of one failure, so we need fund management to limit the maximum loss limit, which is generally 2% of the maximum loss in a single transaction.
The idea of stable profit is generally to have a certain winning rate and a certain profit-loss ratio.
Let’s talk about consistency first . We are human beings without the ability to predict the future , so it is impossible for us to know how the future market will go in the process of trading. If you do not trade according to the established strategy, the result can only depend on luck. The only option we can choose is consistent transactions.
On the other hand, consistency is also a way for people to control the outcome without knowing the future. Suppose you are rolling dice. Although you don’t know what you are throwing, you know that the probability of rolling 1 is 1/6. Although you roll 6 times, there may be no 1 at one time, but the probability of rolling 1 is still 1. /6. In the case of a very large amount of data, the result of 1 occurrence accounts for 1/6 of the total. This is the law of large numbers.
Therefore, consistency is required to make transactions, and strategies must be strictly implemented.
Consistency allows you to control the probability, that is, the winning rate. Stable profits also need to consider the profit-loss ratio.
Here I will directly talk about the conclusion, and the specific reasoning process can solve the equation by yourself (set the unknown).
Stable profit, that is, the expected value is positive, expected value = winning rate * profit-loss ratio - failure rate , because we maintain consistency, the winning rate is fixed, so the failure rate is fixed, and if the profit-loss ratio is appropriate, stable profits can be achieved. Because our transactions are not completely standardized, the profit-loss ratio can also be changed according to the specific situation. Here, the average profit-loss ratio can be used. For example, suppose: 100% winning rate, then expected value=1*profit-loss ratio-0, because the profit-loss ratio cannot be negative, the expected value will always be positive; suppose: 50% winning rate, 0.5*profit-loss ratio-0.5>0, the profit-loss ratio needs to be greater than 1 in order to make a stable profit.
How to make stable profits involves philosophy.
We are generally pragmatists, we can use it and see if it works well. This method is not feasible in trading. It is very simple. The past does not represent the future. If you see a currency pair rising well, the next It plummeted in seconds.
Doing a transaction requires a prioriism, that is, theoretically demonstrating the feasibility of a strategy. Take dice as an example. Although I don't know what will be thrown next time, I know that the probability of throwing 1 is 1/6. If I earn 6 on 1 and lose 1 on all others, then my profit-loss ratio is 6, my winning rate is 1/6, and my expected value is 1/6. It means that no matter whether I lose or make money in the short term, I will definitely make money in the long run. This is a roll of the dice, we can easily deduce the principle, is there a principle in the transaction? Of course there is.
Market principle : a market where people participate (human nature), all participants want to make money, etc... Some people may say that programmatic transactions, but those are still written by humans and cannot get rid of human nature.
Participants want to make money and don’t want to lose money, so they will carry orders; at the same time, they will also experience the experience of getting losses from profits, so they will close positions when they make small profits; there will also be a group of people who follow the trend, and every time they follow the trend successfully, they will Fuel the success of the next trend.
Based on the above reasoning, a market phenomenon is formed, and the price runs with the trend: the new high point in the upward trend is higher than the previous high point, and the new low point is higher than the previous low point. It is up to the master to lead the door to practice, and the follow-up people who are predestined will succeed according to my guidance. Those who know me know it, and those who don't know me, no matter what I say, I don't know. Everything is up to fate.
We are humans who cannot predict the future and cannot guarantee a 100% winning rate. What we can do is to use what we know to make the expected value positive, and we can make stable profits.
I am only a blind man feeling the elephant in the market, and my answers and conclusions do not mean that there must be flaws in the truth.
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