Effective trading strategy = compound interest effect + probability effect of taking profit and stopping loss + rejecting greed and fear, strictly enforcing discipline + excellent position management + core strategies for high success rates
# Compound interest effect
Einstein once said: "Compound interest is the eighth wonder of the world. He who understands it, earns it ... he who doesn't ... pays it."
Translation: Compound interest is the eighth wonder of the world. Those who know it earn, those who do not are earned.
The mathematical formula for compound interest is as follows:
F=P(1+i)^n
F: represents final value, which is the end result.
P: represents present value, which is the initial input value.
i: represents interest, which is the return rate/growth ratio of an investment.
n: represents time, on a larger scale, it can be understood as the number of executions.
Three factors determine the final effectiveness of an investment: present value, return rate, number of executions.
For example, the following are several results of compound interest calculations:
(1-0.01)^365=0.03
(1+0.01)^365=37.8
(1+0.02)^365=1377.4
In these three cases, the present value is the same, but due to the extremely small differences in return rates, after 365 executions, the final results differ by thousands of times.
# The probability effect of taking profit and stopping loss
If your investment success rate is 50%, and you set a 10% take profit and -10% stop loss each time, after 100 trades, your total return can reach -39.50%.
1.1^(50)×0.9^(50)-1=−0.39499393
If your investment success rate is 53%, and you set a 10% take profit and -10% stop loss each time, after 100 trades, your total return can reach 10.46%.
1.1^(53)×0.9^(47)-1=0.104613272098849
If your investment success rate is 60%, and you set a 10% take profit and -10% stop loss each time, after 100 trades, your total return can reach 350.05%.
1.1^(60)×0.9^(40)-1=3.50050747
If your investment success rate is 50%, and you set a 10% take profit and -5% stop loss each time, after 100 trades, your total return can reach 803.26%.
1.1^(50)×0.95^(50)-1=8.03263627
# Reject greed and fear, strictly enforce discipline
Humans can be greedy, fearful, jealous, selfish, vain, arrogant, biased, angry, lazy, gluttonous, lustful, hateful, arrogant, hesitant, deceitful, and blindly follow...
But cats don't, cats only say meow meow meow.
Let the cat trade for you.
# Excellent position management
In contract trading, position management and capital management are the keys to success or failure. Only use 2%-5% of the principal as the basic position, using a maximum of 5 times leverage. This can effectively control risk and avoid emotional decision-making caused by excessive volatility.
Liquidation risk:
Under 10x leverage, a 10% price fluctuation will trigger liquidation.
Under 75x leverage, a 1.33% price fluctuation will trigger liquidation.
Under 125x leverage, a 0.8% price fluctuation will trigger liquidation.
# Core strategies for high success rates
Required hexagram: You have faith, great success, steadfastness brings good fortune, beneficial for crossing great rivers.
Learning to wait for the right moment is an essential wisdom in life.
To follow a trend, you need to wait for a pullback; to trade in a range, you need to wait for highs and lows; to grab a rebound, you need to wait for a breakout and pullback; to bottom fish, you need to wait for a reversal.
Short squeeze, oversold rebound, core secrets omitted here.
