Recently, I have had a deep understanding of trading. I reviewed my trading records and found that my win rate is actually only between 50% and 60%. Strictly speaking, it is not much different from the probability of flipping a coin.
This made me start to think about a very core question: Since my prediction accuracy is not high, why can I still make money?
In the end, I realized a groundbreaking conclusion: In trading, whether the market is rising or falling is really not important!
1. The true essence of trading: it is not the win rate, but the 'expected value'.
We are often trapped by the myth of 'high win rates', always thinking that those who can make money must be the 'prophets' who can predict the direction correctly 80% of the time. But in fact, whether a trading system can be profitable in the long run depends on whether its 'expected value' is a positive number.
2. Transitioning from "predictor" to "risk manager"
Since the accuracy of predictions is not important, what really determines my success or failure comes down to two key actions:
1. The wrong time: Strictly control losses
This is my "lifesaver." I have learned to mechanically execute stop losses. When I realize I'm wrong, I don't argue with the market; instead, I immediately admit my mistake and keep my losses to a minimum.
This ensures that the "average loss" in the formula is always minimized, protecting my capital. My 40% to 50% failures are just a small cost of entry.
2. The right time: Let profits run
This is my "profit point." When I see the right direction and the market starts to go along with the trend, my focus is on controlling the risk-reward ratio, holding onto profits as much as possible, so that the money earned far exceeds the money lost.
As long as I catch a few trends, one big profit can easily offset multiple small losses. This is the power of a high risk-reward ratio.
3. It's not that I choose the market, but rather that I happen to be in the right market
This is my greatest insight. In the past, I always thought I was very skilled, having picked the right stocks or timing. Now I understand:
• It's not me choosing the market: I just enter according to my trading system and entry signals; I have no ability to predict the future.
• Instead, I happened to trade in the right market and held onto my profits: When the market enters the trend defined by my system, I just happen to be in the market and disciplined enough to hold onto that profit.
• Just let the wrong market hit the stop loss: When the market becomes chaotic or goes against the direction defined by my system, what I do is just leave the market with discipline.
Trading, in essence, is a game of probabilities and the art of risk control.
Choice
In my daily trading, I usually choose highly liquid mainstream currencies
Once a trend is established, it's easier to hold onto a large swing
