Profit-loss ratio is a very simple concept. Take coin toss as an example. If you win a right, you lose a wrong. The profit-loss ratio is1:1; If you win three pieces correctly and lose one piece wrongly, the profit-loss ratio is 3: 1.

In the transaction, every correct transaction earns three, and every wrong transaction loses one. The profit-loss ratio is 3: 1.

The profit-loss ratio in actual combat mainly has several specific situations:

The first type: fixed-point profit-loss ratio

Stop loss is 50 points each time, and profit is set at 100 point, as long as each transaction adopts the trading logic of fixed position; The profit-loss ratio is 1:2. As long as the success rate reaches 33%, the account can break even.

The second type: fixed profit and loss.

For example, in my firm account shown below, the stop loss for each transaction of 100 USD is set to 200 USD, and the profit-loss ratio is 1:2. Adjust positions according to different stop loss spaces; The proportion of each stop is the same, but the number of stops is not fixed. Similarly, as long as the success rate reaches 33%, the account can break even.

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The third type: trading logic with dynamic appearance.

Stop loss is fixed or dynamic, but take profit must be dynamic, and the profit-loss ratio changes.

Such trading logic is usually to choose the fund management method of fixed positions.

For example, it is often used: tracking trends with inflection points, tracking trends with trend lines, or tracking trends with moving averages; This is the trading logic that really makes profits run. The profit-loss ratio of this appearance is dynamic.

In many cases, the profit-loss ratio may be unreasonable and the success rate is very low, but once a very big trend is encountered, a very high-quality profit-loss ratio will be obtained, and one or two big profits with high profit-loss ratio will be used to recover the previous losses.

How to improve the profit-loss ratio?

Objectively speaking, profit-loss ratio and success rate are two ends of a balance; Too much emphasis on profit-loss ratio will lead to a decrease in success rate; On the contrary, overemphasizing the success rate will lead to a decrease in the profit-loss ratio, so what can be done to achieve a relatively reasonable balance?

First, switch between large cycle and small cycle to obtain a more favorable profit-loss ratio.

(Think big and do small) For example, I will switch between the time period for judging the trend and the time period for entering the market in the actual transaction, judge the trend in the big cycle and choose the entry signal in the small cycle.

For example, in foreign exchange trading, the band of 1 hour level enters the market with a cycle of 5 minutes, and the band of 4 hours level enters the market with a cycle of 15 minutes; In domestic futures, the band of 15 minutes enters the market within the time period of 1 minute. The purpose of this is to enter the market in a small cycle and obtain a better profit-loss ratio in a large cycle.

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Second, rationally lay out positions and choose more advantageous entry positions.

The form of broken position is to open the position in advance before broken position? Or build a position when you break through? Or wait until the breakthrough is established and the market produces a counter-pumping market before entering the market?

These three ways of entering the market puzzle all traders; Although the price advantage is large and the profit-loss ratio is reasonable, the possibility of making mistakes also increases; The disadvantage of entering the market while waiting for a breakthrough is that the price of entering the market is higher; The third way is to wait for the market to break through and enter the market, probably because the trend is strong and the trading opportunity is not missed.

The best way to solve this problem is to open positions in batches, choose a compromise point between the position price and the profit-loss ratio, taking into account the success rate and the profit-loss ratio; This will be more balanced, stable and feasible.

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abstract

The result of any transaction is inevitable due to two factors: profit-loss ratio and success rate; Traders pursue the combination of profit-loss ratio and success rate to maximize profits.