Before I paid attention to the transaction, I only knew that I had made a profit and lost money. In a cycle, it seems that it depends on the weather if you make a profit this month and lose money next month.
How would you describe your trading ability? I
A better scheme is described by winning percentage and profit-loss ratio.
The winning rate refers to the number of profitable transactions in 100 transactions. Transaction 100, positive income 10, winning rate 10%.
Profit-loss ratio refers to the ratio of the average income of profit trading to the average loss of loss trading. There are 10 transactions, of which 4 transactions are profitable, with an average profit of 10%, and the other 6 transactions have an average loss of 5%, with a profit-loss ratio of 2: 1.
Ignoring the influence of handling fee, if the profit-loss ratio is 1: 1, the winning rate needs to exceed 50% to make a profit; And if the profit-loss ratio is 2: 1, the winning rate only needs more than 25% to make a profit. The profit-loss ratio reflects the ability of traders to control risks. If they lose less and earn more, they will naturally continue to make profits in the market.
In the trading world, 100% is impossible. The winning rate of professional traders usually does not exceed 40%, but it does not prevent traders from making money, because they can control the profit-loss ratio well.
There is a chicken soup saying that you don't know how to achieve the greatest success, but you know how to leave the smallest regret. Then, we know that we should do something with no regrets.
For trading, we can't control how much we can gain, but we can control how much we suffer.
Therefore, the first way to improve the profit-loss ratio is to "cut off the losses and let the profits run". How much profit is determined by the market; The extent of the loss is determined by the trader. Therefore, when encountering the maximum tolerable loss, stop loss on schedule can control the average loss well.
To control the average loss, we should also control the average income as much as possible by increasing profits. Why do you want to make a profit and increase your position? We often only see that adding positions can increase profits, but forget that adding positions will also increase losses. If jiacang is not profitable, it will increase our average loss, thus reducing the profit-loss ratio, which is not the result we want.
If your winning percentage is below 25%, even if the profit-loss ratio is 3: 1, you will continue to lose money. Therefore, we should also strive to improve the winning rate. The methods to improve the winning percentage are:
For the same individual trader, the success rate of "2% loss risk and 4% return" is much higher than that of "50% loss risk 100% return", although the profit-loss ratio of this matter is 2: 1.
The statement of "50% loss risk 100% return" is: 50% loss is acceptable, and the return must be above 100% to make a profit, which is a successful transaction. Few stocks can meet the annual increase of 100% or more. It is a miracle that thousands of stocks can be bought correctly at low points.
The following table is a winning percentage list based on the income statement of Stock Wizard II. Although we have a chance to get 100%, if we have a high tolerance for losses, we are likely to lose money.
Through this table arrangement, I understand two reasons: first, you don't have to pursue the winning rate indefinitely, and you can make a profit of 30%-40%; Second, there is no need to persistently pursue high returns, excess returns can be met but not sought, and a small amount of losses plus a small amount of returns can continue to create wealth.
The red letters in the picture represent the best returns. The profit-loss ratio is not as high as possible, but needs to find a balanced value.
(Word number: 1232, time: 80m, date: 2021-12-13)