The basic principle of foreign exchange trading: to admit the compensation in time, and let the profit continue to grow. Many people know this principle, but not many people can really understand it, and a friend of mine is exactly like this!
He has worked hard in the foreign exchange market for 7 years, studying various trading techniques, indicators, and strategies, hoping to improve his accurate prediction of transactions. Because he thinks he can make money only by successfully predicting market conditions.
With the accumulation of experience and rich skills, he also has a good winning rate, but he still failed to make a profit. Not long ago, a big market fluctuation caused him to liquidate his position. This blow made him want to give up the transaction and leave the market dejectedly.
As the saying goes, the authorities are obsessed with the onlookers, and he wants to leave the market after liquidating his position. Instead, he understands that foreign exchange trading is 1000 times more important than a high winning rate.
The following is a summary of this friend based on years of trading experience and insights after failure. I hope to give some warnings to Huiyou who are fanatical in pursuit of a high winning rate!
Many people think that a high accuracy forecast rate is required for a successful transaction?
However, based on the author's many years of trading experience: "This is a misunderstanding." Don't spend too much time on "market forecasting", and spend time on "risk control and fund management" to get twice the result with half the effort.
Misjudgment is an inevitable phenomenon in the trading process. Excellent traders should maximize their profits, not the number of wins. Professionals make a lot of money because their average profits are far greater than their average losses.
Some novices often have this confusion:
Some professional traders seem to often make mistakes and often stop losses. Why are their profits so high?
Some foreign exchange traders like me are obsessed with the analysis and judgment of various technical indicators, trying to find the most effective entry point. They have a relatively high winning rate, so why do they end up blowing out their positions and leaving the field?
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01
No one can guarantee that they will always maintain a "high winning rate"
In foreign exchange trading, the winning rate is of course a very important part. If you can have a super high winning rate, then your chances of making money will naturally be high.
However, we must be soberly aware that:
The market is complex and changeable, and no technical system can guarantee that it will always be applicable. Spending too much energy on improving the winning rate may have little effect.
Therefore, if foreign exchange traders want to grow, they must get out of the one-sided "pursuit of winning rate" misunderstanding.
02
Even a high winning rate does not necessarily make money
With a high winning rate, no profit-loss ratio, and no money management, you will fail, and you may fail even worse!
So what if you are accurate, you can only earn 50,000 at a time, and you are not allowed to lose 300,000 at a time. In this way, the winning rate does not exceed 85%, and it is absolutely impossible to make money, not to mention that the winning rate of most people is often lower than 50%.
Therefore, spending more energy on expanding the profit-loss ratio and fund management will get twice the result with half the effort.
In fact, in the foreign exchange market, the losers account for the vast majority, and most of the losers think that the failure is because they did not see the market correctly, so they can succeed only by improving their k-line skills.
Little do they know that they should review why there are continuous "small profits and big losses" or "big profits and then big losses". These are the essence of failure. Remember, losses are part of profits, and losses are normal of.
The most important thing is to strive to achieve "losing less each time and earning more each time". Without a trading strategy and skill that can 'maintain the profit-loss ratio' and 'fund management', no matter how high the forecast accuracy is, it will be in vain.
Many veterans still lose money after trading for more than 10 years, because they are still in the "guessing market" stage, and the maximum loss is not proportional to the maximum profit.
Simply ask a person what is the maximum profit per trade and what is the maximum loss per trade, and you will know whether he is a winner or a loser.
There is only one purpose in studying the market situation and research direction, which is to find trading opportunities.
More importantly: always take potential profits and risks into the greatest consideration, and don't worry about the small losses in the middle. The establishment of the entire trading system is where you should put the most thought.
Many people compare foreign exchange to a poker game, because the success rate is the least important in the performance statistics, and it even has an inverse relationship with the performance.
Because whether it is a poker game or foreign exchange trading: it is not about who wins the most times, but who makes the most profits.
03
Appropriate profit-loss ratio is the key to making money
The profit-loss ratio is a lagging indicator. After you have done a lot of transactions, you have calculated what your profit-loss ratio is. Only then will you know what your profit-loss ratio is roughly.
Therefore, when we enter the market, it is difficult to guide us by the ratio of profit and loss. How much you can earn is given by the market, not by you. If the profit-loss ratio is set forcibly, it is very likely that the profit will become a loss, or the market may be short-lived.
The author believes that relatively speaking, it is easy to set a stop loss, but it is more difficult to make a reasonable profit after making a profit. Here are a few suggestions:
Therefore, you should make a trading plan according to your trading system, and exit the market according to the stop profit when the trend judged by the market you follow changes.
After making a profit according to the trading plan, it is recommended to set the cost line as a forced exit point to ensure at least no loss.
There is a certain amount of floating profit space, and you can take profits moderately to gain a bigger market and expand the profit-loss ratio! Then combine your own situation to make matching choices, and finally slowly improve your own trading system!
Adhere to the implementation and ensure the consistency of transactions!
04
what should we do?
Here I will give you a brief introduction based on my own experience:
1
How much should our bottom position usually be?
Most people think that: with a certain success rate, the bigger the position, the more you can earn.
In trading, it is not that the larger the position, the more you earn. In fact, the appropriate position size has a certain relationship with the success rate of order making and the profit-loss ratio.
Assumptions:
The success rate of our order is 50%, the first time is right, the second time is wrong, the third time is right, the fourth time is wrong... Our positions are 100%, 50%, 25% and 10% respectively Four forms.
You can see the following four endings:
100% positions died very early, almost instantly;
50% of the position, the account has not been moved much, although it is not dead, but there is no profit;
A 10% position can make a stable profit, but the profit is relatively small, and the profit is 6%.
The biggest profit is 25% of the position, and the profit is about 20%.
Now everyone understands why some people often stop losses, but the profits are high?
In fact, the best position ratio is related to the success rate P and the profit-loss ratio R of the order.
The profit-loss ratio R is the ratio of an average profit to a loss. The higher the profit-loss ratio, it means that you earn more and lose less, and the position can naturally be larger; the success rate is naturally simple, and the higher the success rate, the better the position big.
A famous Kelly formula:
Kelly formula: q=p-(1-p)/R, where P is the winning rate and R is the profit-loss ratio. When the winning rate and profit-loss ratio are fixed, there is a suitable optimal position: q=p-(1-p)/R.
2
Three reasons why you can't reload
Do you now understand why foreign exchange trading cannot take heavy positions?
1. If you look in the right direction, you will not make money. Stop loss frequently, and each time the loss is larger.
Timing is extremely important in forex due to the high leverage. In an upward trend of the market, it is very common for the market to fluctuate by 4%.
But if you have a heavy position, or even a full position, then a 4% fluctuation will cause your account to lose more than 30%, which is a relatively large loss. Therefore, you may be forced out of the game before you reach 4%.
As a result, after the shock, the market continued its original upward trend. It turned out that I was looking in the right direction, but I didn't make any money, and I also lost a lot.
Fact verification: 80% of stop losses can be resisted.
2. Encountering a black swan may make your profits for many years "return to zero overnight".
Although black swans rarely happen, it is normal to happen several times a year. Although you have successfully avoided them for many years, it is normal to encounter them once in a few years.
Even if you have earned dozens or hundreds of times before, once you encounter a black swan, you are not given a chance to leave the market;
Or if you lose your mind and can't bear to cut it off, a wave of market conditions will bring you back to zero in an instant.
3. Heavy positions, one stop loss, large losses, affect mentality.
After a heavy position, a 30% retracement is common. Your mentality is prone to irrationality, and you are eager to earn back. As a result, you fall into a vicious circle of more urgent, more loss, more loss, and more urgent.
3
Under what circumstances can a heavy position be placed?
So is it not possible to reposition? Many friends still yearn for the heavy warehouse, after all, it is a gamble to change a bicycle into a motorcycle.
In fact, it's not impossible to take heavy positions, but the conditions for heavy positions are extremely harsh.
From the above formula, we can see that when your success rate is extremely high and the profit-loss ratio is extremely high, your optimal position is a heavy position.
In fact, the Kelly formula has a flaw, which ignores a condition, that is, the absolute value of the stop loss, and there is no absolute value of the stop loss in the formula.
Even if your profit-loss ratio is large, such as 50, and your success rate is high, such as 80%, then you can take a heavy position at this time.
At one extreme, if your stop loss is 50%, then if you stop loss twice in a row, you will be out of position.
Therefore, the conditions required by our heavy position:
First: The success rate of direction judgment should be high, and the number of stop losses should be ensured to be small, so that the total retracement is small.
(High chance of effectiveness) The success rate, when the market is in this situation, the success rate you judge is very high. When there are multiple theoretical resonances, the probability of success is high at this time).
Second: That is, the profit-loss ratio is high.
The concept of profit-loss ratio has an after-the-fact meaning, and it is difficult to know beforehand. Because of a certain transaction, we cannot judge the future profit margin purely based on technical analysis, nor can we judge the profit-loss ratio of a certain transaction at that time.
Therefore, pure technical analysis cannot know the profit and loss ratio of a certain transaction in advance, which mainly depends on fundamentals to judge.
Because fundamentals determine the future price direction and range, this requires the assistance of fundamentals, which cannot be done by pure technical analysis.
Third: The stop loss range of 1 lot is very small to ensure that each stop loss is small.
Each loss = 1 hand stop loss range * how many hands (positions) <= 3%. The stop loss of 1 lot is very small, even if the position is large, the total loss can still be controlled within a certain range.
Because the stop loss range is too small, frequent stop losses may occur, so the result:
Although each stop loss is small, there are many stop losses, for example, 5 stop losses to catch a market, which means a total loss of more than 15%, and a retracement of 15%. If you lose 5% each time and lose 5 times in a row, it is 25%, and the drawdown is too large.
Therefore, to improve the success rate and ensure that the total retracement is less, this depends on your grasp of the key points. If you grasp it well, you can achieve the two conditions of high success rate and small stop loss.
From the above conditions, it can be seen that the conditions for heavy positions are extremely harsh, so it is better not to take heavy positions in foreign exchange transactions.
Now everyone should understand why people who often stop losses can make good profits, while people with a high winning rate blow their positions and leave the market, right?
I hope that you can summarize your usual transactions, analyze your current profit and loss situation, and find the best position according to your transaction situation, so as to have a higher profit-loss ratio. I believe that you are not far from realizing long-term stable profits!
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I hope this article can make foreign exchange traders get out of the confusion when they are in confusion. Old rules, if you haven't understood it, please bookmark it first! Welcome to leave a message to communicate with the editor!
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