I often hear a lot of people say: no one can make stable profits in trading, only survive temporarily, and any system will fail!
Is that really the case?
This depends on the length of time. If we look at the length of hundreds of years, we don’t know what the future will look like. Will artificial intelligence self-learning transactions replace human transactions? If replaced, it's not surprising that any system in place today will fail in the future, it's just an unknown.
What if we look at the length of decades? In fact, Buffett, Soros, and various fund leaders have proved by facts that an effective system can make stable profits.
However, if you look at it from a relatively short period of time, such as a few weeks or months, or even a few years, it is normal for the system to fail, because no matter which investment tycoon is, there are also investment failures. experience.
Many people often fall into a misunderstanding, thinking that a stable profitable system should make stable money.
In fact, this is mainly because the understanding of probability is not deep enough.
A system with a positive expected value allows short-term failures, that is, the system has included short-term failures in the system, but it does not affect its long-term overall profitability.
First of all, we must understand that the fundamental reason why so many people think that no one can make a stable profit and that any system will fail is that they themselves cannot make a stable profit, and they have never seen anyone who makes a stable profit. If you make such an excuse, you can put on a high-sounding reason for your failure.
One of the main reasons for this is that their understanding of probability is not deep enough.
For example, a trading system with a positive expected value has a winning rate of 40% and a profit-loss ratio of 3:1. In the long run, if you insist on trading according to the rules of the system, you can make stable profits.
However, if you insist on trading according to the rules of the system, lose 7 times in a row, then start to doubt the system, deny the system, and then start not to trade according to the signals given by the system, then you will lose money in the end and blame the system again. how?
The winning rate is 40%, which means that on average, 10 transactions will result in 6 losses, that is, the system will fail 6 times. However, if you stick to the system for a long time, you will eventually be profitable overall.
However, this situation is only on average, and sometimes there will be a fat-tailed situation with a normal probability distribution.
What does that mean?
That is, under normal circumstances, the frequency of events occurs in a balanced distribution; but in special cases, the equilibrium will deviate; and in extreme cases, there will be serious deviations.
For example, when flipping a coin, we know that the probability of heads and tails is 50%; but in special cases, there may be 5 or 6 heads in a row; and in extreme cases, there may be 10 or 15 heads in a row front! And only when the sample size is large enough, its mean will approach 50%.
For a system with a winning rate of 40%, there may be 7 or 8 consecutive losses, or in extreme cases, even 10 or 12 consecutive losses! It's just that it's less likely.
This is the reason why the long-term capital management fund, which was composed of several Nobel economists and Wall Street elites, collapsed and encountered low-probability events.
So always remember-light trading.
Similarly, as long as you insist on trading according to the rules of the system, there may also be a system with a winning rate of 40% and a continuous profit. In a certain period of time, the winning rate may reach 50% or 60%.
Therefore, as long as the understanding of probability is more thorough, the transaction will be much smoother.
Another reason is that their enforcement is lax.
For example, the system rules have specified that they should trade light positions, but they want to take heavy positions; or, when it is time to enter the market, they dare not enter the market, and when it is time to stop the loss, they are reluctant, and then finally burst their positions, yelling that no one can stabilize their positions. Make a profit, any system will fail...
Who can blame this?
And this is still in the case of a trading system with positive expectations, and if such a system has not been built yet, you keep shouting, is it really so easy to make stable profits?
You must know that there are only a few people who can make stable profits after all! Therefore, if the execution is not strict, you will never be able to become one of these few people.
Therefore, trading requires not only strict execution, but also probabilistic thinking. Whether the system can still persist during the period of system failure is a sign of judging whether a trader is mature.
Knowing this, what should we do if we want to make a stable profit?
First, build a trading system with positive expected value.
The trading system is the basis of stable profitability, and building a trading system with positive expectations is destined to be a long process, and most people cannot build it. Therefore, if possible, it is best to learn from someone close to you who has confirmed success in this area, which may save five or six years of time.
If there is no such condition, then everything can only be done by yourself. For how to do it, you can refer to another article "How to Build a Reliable Trend Trading System?" ".
Then, strictly abide by the rules of the system to trade.
When you have a stable trading system, the system will generate some trading rules. You must trade strictly in accordance with the system rules, observe discipline, and be consistent, so that you can embark on the road of stable profitability.
If you are always unable to control yourself and will foul from time to time, then the gods can't help you, because you can only rely on yourself!
Finally, when encountering a period of system failure, first suspend trading.
That is to say, when you encounter consecutive losses, it means that your trading system is not very suitable for the market environment at the moment, so you can suspend trading for a period of time.
Just don't shake your confidence, you can wait until you have a clear view of the market again, find the rhythm of the market, and then start trading again.
Or you already know your trading system very well, and you also know the maximum number of losses in the system. If you know that this is within the acceptable range, then stick to it.
For example, if the maximum number of consecutive losses in your trading system is 10 times, and you have lost 7 times in a row, then stick to the signal of the system, because the profit may be the next time.
After completing the above three steps, I believe you will no longer have doubts about whether someone can make stable profits.
Because, all traders who can make stable profits are those who have embarked on a bloody road after fighting in the market for a long time. They all understand the subtleties of probability and persevere. You can walk together too!
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