This article will not teach you technical analysis, nor will it give you a trading system, and it will not teach you how to make money.
However, if you want to make money in the fields of speculation or investment, you must understand what your logic for making money is and why your approach can lead to profits.
The logic I am referring to is not 'I think the fundamentals of this investment target are good, it will be valuable in the future, so I bought it' or 'this variety has broken through the trend line, it will definitely rise, so I entered'. This is just a small part of the logic.
Whether you are trading, investing in real estate, or even playing Mahjong, as long as it involves capital gambling, I believe it cannot be separated from the following points of profit logic.
1. Accuracy
This point is easy to understand. Suppose you have a 100% accuracy in trading; every buy leads to a price increase; every round of Mahjong results in a win; no matter how you play, you are always winning. Of course, this is just a hypothetical scenario; in the world of gambling, nothing is guaranteed to be 100%.
Now, let me ask you a question: if I give you a trading system with a 99% accuracy rate, do you think you can be profitable?
Take 3 seconds to think.
3
2
1
The answer is: not necessarily. Why? Please see the second profit logic.
2. Odds
99% profitable trading system, in 100 trades, the first 99 trades each make 1 dollar, and the 100th loses 100 dollars, resulting in a total loss of 1 dollar.
Does this sound familiar? That's right, it's the 'holding positions' we experienced as beginners. Many people choose not to cut losses to maintain paper profits. Over time, it seems like the win rate is pretty good, and most trades are profitable. However, once a trend occurs, the account can be wiped out.
Therefore, in addition to accuracy, we also need odds, which means good risk-reward ratios. We often see some big players making mistakes frequently, with a win rate of around 30%, but due to the extremely high risk-reward ratio of their system, a single win can offset 10 losses. So how should we balance accuracy and odds to reach the profit standard? It's simple: calculate the expected value.
A profitable trading system must have a positive expected value. Expected value = win rate × profit - loss rate × loss. For example, if the win rate is 40% and the loss rate is 60%, then when the risk-reward ratio is greater than 1.5, the expected value > 0.4 × 1.5 - 0.6 × 1 = 0, indicating a trading system with a positive expected value. Over the long run, this will be a profitable system.
So now, let me ask you again, if I give you a trading system with a 99% win rate and a risk-reward ratio of 2, do you think you can make money?
Take 3 seconds to think.
3
2
1
The answer: still not necessarily. Please see the third trading logic.
3. Loss Rate
A system with a 99% win rate and a risk-reward ratio of 2 may seem invincible at first glance. However, if unfortunately, in 100 trades, the first trade incurs a loss, and you have staked your entire fortune on that losing trade, causing a total loss, you will have no money to play the second round. No matter how high the win rate or risk-reward ratio afterward, it won't matter.
This is the loss rate, which we commonly refer to as capital management.
For each trade, you need to think about how much money to gamble. For example, 3% of your funds, then based on your stop-loss space and leverage, determine the corresponding position size, ensuring that if you stop-loss, you only lose 3% of your account. If it is a positive expected trading system, as long as you do not lose everything in one go, with more and more trades, your account will definitely be profitable overall.
Thus, this highlights the importance of 'preserving capital'.
So, what proportion of money should you use to gamble? This relates to the issue of capital management. I will write another article to elaborate on this when I have the opportunity.
Okay, the same question remains: now there is a system with a 99% win rate, a risk-reward ratio of 2, and a loss rate of 3% per trade. Do you think you can make money?
Take 3 seconds to think.
3
2
1
The answer: still not necessarily. Please see the fourth trading logic.
4. Discipline
I believe many people have seen quite a few trading systems, but when it comes to actual operation, they often can't control themselves and easily get carried away. Even if you have such a perfect system, with high win rates and good risk-reward ratios while controlling losses, you are still human, a dopamine-driven human being, not an emotionless robot. Therefore, you will definitely have human weaknesses: greed, fear, hesitation, and various factors that prevent you from steadfastly executing the trading system.
This point goes without saying; I believe discipline is the core of making profits in trading. Even a simple moving average system that a child can understand—buy above the moving average, sell below the moving average—can make money. But the problem is, can you guarantee that you will execute the buy and sell signals every time? 'Maybe I will adjust here, definitely not going to be the last one holding the bag.' 'Maybe it will continue to rise, missing out makes me slap my thigh.' Are these familiar fantasies? I believe everyone has experienced this.
Unity of knowledge and action; this phrase is the core of profitability, but it contradicts human nature. Human nature has many flaws, which is due to dopamine, a physical factor. As long as you are human and have dopamine, you will have these shortcomings. Therefore, why is trading difficult? It is difficult because the process of making profits is essentially the process of resisting human nature.
Lastly, the same question remains: there is now a system with a 99% win rate, a risk-reward ratio of 2, and a loss rate of 3% per trade, and you can steadfastly execute every signal of the system. Do you think you can make money?
I know you must want to say, absolutely yes.
Still take 3 seconds to think about it.
3
2
1
Still too hasty, please see the last trading logic.
5. Opportunity Frequency
You strictly filter signals, eliminating all low-probability opportunities and abandoning all low-risk-reward opportunities, which is great. However, you should know how often such perfect entry opportunities actually occur. What if they only appear once in a hundred years, but you can only live for 99 years?
Trading opportunities indeed need to be screened; only taking high-certainty, high-risk-reward trades can greatly improve profitability and reduce the workload of monitoring the market. However, it is also important to understand one thing: the higher the entry signal requirements, the lower the frequency of occurrences. Therefore, we need to balance quality and frequency, conduct a lot of backtesting, and optimize the most appropriate trading strategy.
The above are the 5 points of trading logic that I have summarized. Whether applied in trading, real estate, investment, or playing cards, they are universally applicable. If you lack any one of them, you will not be able to achieve long-term profitability. Reflect on which point your system is missing, fill in the gaps, and improve yourself. I believe that in the near future, you too can return with a full load.
#大而美法案 #币安Alpha上新 #美股代币化
Continue to pay attention:$BNB $BTC $ETH
