[Q] When I was learning trading, I saw a point of view that people with a winning rate of more than half of the trading system are basically novices, and veterans who can make long-term stable profits are all pursuing a high profit-loss ratio, because the essence of profit is to let profits run. But logically, a trading system with a profit-loss ratio of 1:1 and a winning rate greater than 50% can also make stable profits, and the capital curve is more stable and smooth.
Are veteran traders more pursuing a high profit-loss ratio than a winning rate? If so, is it because the profit-loss ratio is 1:1, and it is difficult to find a trading strategy with a winning rate greater than 50%?
[Answer] The profit-loss ratio is 1:1, and the winning rate is greater than 50%, which means that this is a positive expectation strategy. If it is the net profit-loss ratio that excludes transaction costs and impact costs, this is the sustainable profitable trading system that traders dream of, and of course it is difficult to find.
According to my 15 years of trading experience, winners and losers are not distinguished by the ratio of profit to loss.
Going beyond the profit-loss ratio and pursuing the winning rate, and away from the winning rate and pursuing the profit-loss ratio are both obvious characteristics of losses.
Thinking about the profit-loss ratio and the winning rate cannot just stay on the two sets of numbers of 1:1 and 50%.
First of all, you have to realize that the winning rate is actually an indicator that there is a future function.
As long as you have the capital to continue trading, even if the winning rate continues to decline now, you still have the hope of recovering the loss with a high profit-loss ratio trading opportunity.
However, if your stake is limited, your luck is also limited. It is possible that before the big market, your trading game is over due to insufficient balance.
At this time, your winning rate is very low, and the profit-loss ratio is also very low.
You'll conclude from there: This is a bad strategy.
But another person who uses the same strategy and has more funds than you may win the chance to change his life against the sky in the next transaction.
After this transaction is completed, he may come to the opposite conclusion from yours: this is a strategy with a low winning rate but a high profit-loss ratio.
Although the process is difficult, the result is acceptable.
It is also a floating loss to increase the position, Fu Haitang can publish a book and give a speech, and Liu Qiang is gone.
If you choose to take the path of high profit-loss ratio, you need to weigh clearly how long your principal can last.
Everyone knows that the market will eventually give you profit opportunities with a high profit-loss ratio, but you can't naively think that you can catch such a market with a small amount of capital just by luck.
If the principal is really not much, but longs for a high profit-loss ratio, I find that many traders will choose a suicide path: reduce the trading cycle.
Whether it is a trading daily chart or a trading hourly chart, if there is a market, there is, or if there is no market, there is no market. The market will not come just because your trading cycle has changed.
Say you trade gold, which has an average daily volatility of about $20. A trading opportunity with a high profit-loss ratio may be a market with a daily average volatility of 5-10 times. Such opportunities will occur 2 or 3 times a year.
If you want such an opportunity, please check how many times you have opened positions for this opportunity in a year.
If you open a position 10-15 times, I think it is reasonable. But if you open a position hundreds of times, even if you catch all the big market trends, your winning rate will be single digits, and your net profit cannot be positive, because you have paid too much trial and error costs.
Because of this, many traders will choose to reduce the transaction cycle.
I was willing to exchange a $20 stop loss for a $100-200 profit, but now I want to exchange a $2 stop loss for a $10-20 profit.
This is simply a "big clever".
The profit-loss ratio has not changed, but the chance of a day-to-day fluctuation of $20 is almost every day.
But have you ever thought about how many times the probability of a unilateral fluctuation of 2 dollars in a day is a unilateral fluctuation of 20 dollars.
You put a stop loss at $2, and the probability of the stop loss being triggered will increase by this multiple.
The stop loss tolerance rate of $2 is too low. After you do it a few times, you will find that the winning rate is still very low.
In the big cycle, the reason for the low winning rate is that the big market did not come, and the stop loss was triggered because the profit could not be obtained.
But in a small cycle, the low winning rate is because the profitable orders are stopped first.
What do you think the "big clever" will do? Then stop losing.
The result is that after tasting the sweetness of not stopping the loss a few times, you will be punished by a unilateral market upwards of 100 US dollars.
It seems that it is easier to make profits by reducing the transaction cycle, but in fact it reduces the profit demand and increases the transaction frequency.
After having said this, the really smart ones should be able to understand that abstract discussion of 1:1 and 50% is meaningless. We need to add restrictive conditions to the profit-loss ratio and winning rate to enrich the entire fund management system.
For example, it is absolutely not advisable to sacrifice the winning rate unlimitedly for the sake of a high profit-loss ratio.
If your profit target is only 2 or 3 times a year, then you must reduce the trading frequency to about 10 times to ensure that you can achieve a positive profit and loss ratio of 5-10 times under a 20-30% winning rate. income. If you trade 10 times a year, you must reduce the frequency of transactions, which requires you to increase the transaction cycle.
If you have to trade in a small cycle, the potential profit will be smaller, and the probability of triggering the stop loss will be higher due to the randomness of price fluctuations. In this case, in order to ensure a sufficient winning rate, you must reduce the profit-loss ratio.
At this time, you will have two choices, one is to still stop the loss at $2, and reduce the stop profit to $2, which is easier to trigger, and increase the winning rate by increasing the probability of triggering the stop profit. Another option is to increase the stop loss to $10, and the take profit is also $10. Although the stop loss becomes larger, the ability to withstand random fluctuations is also improved, and the lower limit of the winning rate is guaranteed by reducing the frequency of triggering the stop loss.
Which do you choose? If you are allowed to choose, you may hesitate, but as you do it, you will involuntarily move towards the first one.
This is the attraction of frequent transactions.
In the casino, the only possibility that players have a winning percentage advantage over the dealer is poker, but almost all gamblers are addicted to slot machines and baccarat, because the higher the betting frequency, the more opportunities to make money.
Therefore, in my opinion, it is not the profit and loss ratio but the trading frequency that distinguishes the winners from the losers.
Different traders have different strategies and principals, so they cannot all look for trading opportunities in the same trading cycle. However, no matter which trading cycle you are in, reducing the trading frequency as much as possible is the protection of the winning rate.
Only traders who can control the lower limit of the trading winning rate have the right to choose the profit-loss ratio. When setting the profit-loss ratio, it is necessary to make a clear range limit for the loss.
This range must have a clear upper limit. After exceeding it, you will not be able to obtain a sufficient guaranteed profit-loss ratio due to the limitation of profit space.
At the same time, you also need to limit the lower limit of the stop loss. Small stop loss is of course good, but too small stop loss will double your trading frequency and reduce your trading winning rate.
Add
