The Path of Risk-Reward Ratio: From Obsession to Awakening in Trading
Opening Insight
"The market is like a chessboard; those who control the black and white pieces ultimately become pawns, while those who calculate the odds become the players."
After nine years of enlightenment, I finally understand: candlesticks are merely a mirror of human emotions, while the risk-reward ratio is the compass that cuts through the fog.
I. Breaking Attachment: A Cognitive Leap from Prediction to Probability
1. Letting Go of Bullish and Bearish Delusions
The essence of the market is a chaotic system, with 70% of short-term fluctuations being meaningless noise; clinging to direction is like fighting against the waves.
Case Study: In 2024, a futures expert achieved an annualized 35% return using a "directionless grid strategy" in a choppy market.
2. The Mathematical Beauty of Risk-Reward Ratio
3:1 Golden Rule: A stop loss of 1 unit corresponds to a profit of 3 units, with a win rate of only 30% needed to be profitable.
Counterintuitive Design: Actively accept 10 small losses just to capture 1 big trend feast.
II. Establishing Rules: Building the Holy Grail of Mechanical Trading
Three-Level Risk Control System
1. Position Sizing Rules
Single loss ≤ 1% of capital; increase position size: first position 5%, add to position when floating profit exceeds double the stop loss.
2. The Art of Stop Loss
Technical Stop Loss: Confirmed by breaking previous lows/EMA20; Fund Stop Loss: Stop trading if losing 4% in intraday trades.
3. The Wisdom of Take Profit
Dynamic Take Profit: After profits exceed 30%, exit if there is a 50% drawdown; hold trend positions until: a top formation appears on the weekly chart + volume divergence.
III. Cultivating the Mind: The Three Realms from Technique to Tao
1. The Void Realm
Do not predict rises or falls; instead, fully categorize:
"Go long on breaking previous highs, short on breaking the trading range; during other times, drink tea and watch the show."
2. The Determined Realm
Programmatic Execution: After setting conditional orders, close the trading screen to avoid emotional interference.
Case Study: A private equity manager meditates for 20 minutes daily, reducing trading error rates by 37%.
3. The Transformed Realm
Profit feels as natural as breathing:
"Like a farmer sowing seeds, not fixating on the yield of a single plant, but firmly believing in the inevitability of spring planting and autumn harvest."
IV. Practical Mental Techniques
Trend Traders
Only trade daily level breakouts, with a risk-reward ratio ≥ 5:1.
Endure a normal drawdown of 30%, hold the main uptrend.
Short-Term Traders
Fixed 4% stop loss + 6% take profit, no more than 3 trades per day.
Recite before trading: "Better to miss out than to make a mistake."
Quantitative Traders
Calculate position size using the Kelly formula: f=(bp-q)/b.
Follow me, and I will help you see through phenomena to understand essence, together we will traverse the bull and bear markets.