Everything is forewarned and there is a clear and reasonable trading goal, which has very important guiding significance for carrying out trading practice activities. Whether the goal is appropriate or not directly determines the success or failure of the transaction. The formulation of trading strategies should be goal-oriented and stage-by-stage management. The setting of transaction goals should be specific and achievable. Pursuing vague or unrealistic goals will lead to uncontrollable actions in the process.
Before setting goals, you need to understand a truth. The higher the expected profit rate, the lower the probability of realizing a profit and the higher the probability of a loss. The lower the expected profit rate, the higher the probability of profit and the lower the probability of loss (see the figure below).
Draw it casually, it probably means this. It can be simply understood that if you have low expectations for trading profitability, you will eventually make money, and if you have very, very high expectations for trading profitability, you will eventually lose money.
What is root point?
When we set trading goals, we should consider the equilibrium point of profit rate and profit probability. I call this point the "root point". The root point is unique in mathematics, but not in reality. The root point will be affected by traders to produce differences. Why is it called root point? This point is the trading target and the "root" of all trading decisions.
It should be noted that the root point is an aid to help us set trading goals. In theory, unless the expected profit is infinitely close to zero, the risk of trading still exists.
Appropriately high risks help us obtain considerable profits, but the risks must be within the controllable range of the account. Controllable risks determine the profit rate, the root point, and the transaction goal. It determines what kind of trading strategy we use and determines the success or failure of the transaction. In this way, the essence of trading is actually risk control and management.
How to measure and determine the root point?
I'm not very good at mathematics, and I don't know how to calculate. I need a mathematician to give a tutorial on writing formulas, thank you. In fact, the root point in the mathematical sense is more of an auxiliary meaning, and there is no need to pursue specific numbers. When formulating the root point at the practical level, the principle of risk control is given priority, that is, to lower the profit rate expectation, and a certain point on the lower right side of the function curve is adopted.
The target decomposition based on the root point
assumes that a 12% annual income target has been formulated. The annual target needs to be decomposed into monthly targets, and it is enough to follow up the target of 1% per month. Do you think it is difficult to achieve 1% per month? In fact, it is very difficult, because it is impossible to have 1% every month, but it is very simple, some months are faster, some months are slower, and it is not difficult to complete the goal of 12% in a year.
Goals and Trading Strategies
Trading goals directly affect the use of trading strategies. If a trader pursues a monthly trading goal of 1% and has to fill up his positions, I think the trader really doesn’t understand his goal what is it.
What should I do if the transaction is overfulfilled sometimes? I catch one or two waves of the market almost every year. These tiny opportunities bring a large proportion of profits. I regard them as trading gifts and gifts from the market. Since it is a gift, of course it will not always be there, and the influence of receiving gifts should be eliminated in terms of trading mentality.
Trading goals and trading technology
are not mentioned in the whole article. There must be many friends who are only technical. Let me express my point of view. I think technology is useful. Research less. But technology doesn't always work, and for technology to work, certain conditions need to be met.
Within a reasonable profit expectation, technology is effective, beyond this range, the contribution of technology to profit will be invalid. It's as if Newton's three laws of physics are valid in a world of low speed, but they are useless in a world of per capita light speed.
The technology is still the same technology, and the market is also the same market, but is it not surprising that the results are different with different profit expectations? Not surprisingly, excessive profit expectations can only be filled through leverage. Leverage can bring profits as well as losses. When the risk is higher than the limit that the account can bear, no matter how high the technology is, it is afraid that the chopper will not be good.
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