In foreign exchange trading platforms, investors have always had only one goal for trading: profit. So how to make a profit? There are generally two directions: continuously improving the winning rate of trading and constantly expanding their profit-loss ratio. Some traders always try their best to think about how to improve their win rate and profit-loss ratio, but they don't know that there is a mutually restrictive relationship between them. If you excessively pursue a higher profit-loss percentage, the profit-loss ratio will decrease; on the contrary, the winning ratio will decrease if you excessively follow a higher profit-loss ratio. So in the foreign exchange trading platform, should investors pursue a high winning rate and a profit-loss ratio?

win rate

Winning rate=all times of profit/total trading sessions x100% =a (1>=a>=0)

Regarding the winning rate, I believe that investors hope that every transaction they make can be profitable. Under the condition of a profit-to-loss ratio of 1:1, the higher the investor's winning rate, the more profit they will get.

profit-loss ratio

Profit/Loss Ratio = Average amount of profit / Average amount of loss = b (b is a constant greater than 0)

But in the foreign exchange trading platform, the winning rate is not the only decisive factor; there is also a profit-loss ratio. Every profit and loss in the foreign exchange trading platform will continually change. Maybe you won 30 points this time, you won 50 points the next time, and you lost 80 points the next time.

Total profit and loss

Total profit and loss = all times of profit * average amount of profit-all times of loss * average amount of loss

Assuming that the average amount of losses is 1, then the mathematical expectation of total profit and loss can be derived from the above three formulas = total number of times * (ab+a-1)

In the figure, the winning rate is the ordinate, and the profit-loss ratio is the abscissa. There is an optimal winning rate and profit-loss ratio to maximize profit.

For example (without considering transaction costs)

Assume that the transaction records of a foreign exchange trading platform for one year are as follows:

total number of 300

The total number of profitable 91 times

The total number of losses 209 times

The average amount of profit is 30

The average amount of loss is 8

Total profit and loss = all times of profit * average amount of profit-all times of loss * average amount of loss

=91 * 30- 209 * 8 = 1058

Win rate ratio = all times of profit / total times * 100%

= 91/30 * 100% = 30.33%

Profit/Loss Ratio = Average amount of profit / Average amount of loss

= 30/8 = 3.75

What can be seen is that the trader's winning rate is only 30.33%, but due to the sizeable profit-loss ratio, his total profit and loss are still profitable.

look at another example:

The total number of times remains unchanged, the number of profits and the number of losses are reversed, and the average amount of profits and the average amount of losses are reversed.

total number of 300

The total number of profit 209 times

The total number of losses 91 times

The average amount of profit is 8

The average amount of loss is 30

Total profit and loss = all times of profit * average amount of profit-all times of loss * average amount of loss

=209 * 8-91 * 30=-1058

Win rate ratio = all times of profit / total times * 100%

= 209/300 * 100% = 69.67%

Profit/Loss Ratio = Average amount of profit / Average amount of loss

= 8 /30 = 0.27

It can be seen that even if the winning rate is as high as 69.67%, if the profit-loss ratio is relatively low, then your final result is still a loss.

No one can guarantee a high winning rate.

Although the frequency of profit is used as the winning rate in probability statistics, it is only a regression value of past data tests. Of course, according to the concept of expectation, the importance of irrational expectations of past references to the future is also a basic form of expectation.

However, the market changes rapidly, and the same strategy will have different trading results in different periods. Strategies that worked in the past market may not be helpful in the future. With the continuous increase of new influencing factors, it can even be said that the expectations of all strategies are close to zero in an extended period.

At the same time, the winning rate is only valuable if there are enough new statistics, that is to say, the longer the time, the more the number of transactions, the closer your profit result will be, but it cannot be sustained in the long run. , And even changed. Therefore, there is a contradiction between the short-term effectiveness of the winning percentage and the long-term value. This contradiction cannot be reconciled at present.

Bruce, a leading American expert on trading system design and application, began trading in 1975 and entered the research and innovation of trading systems in 1976. He once said, "As far as professional traders are concerned, their profitable trading percentages are often Less than 40%".

It is difficult for even professional traders to achieve a high winning rate, let alone ordinary investors. In the foreign exchange trading platform, the winning rate is undoubtedly an essential part. If there is a super high winning rate, the chance of making money is naturally high. However, the market is complex and changeable, and no technical system can guarantee permanent application. Too much energy to improve the winning rate may have little effect.

Improving the profit-loss ratio is the key to profitability

In actual trading, winning percentage is an important aspect, but improving the profit-loss balance is the key to profitability.

Each time an investor trades an order, a transaction fee will be deducted. From the perspective of throwing the dice, even if the probability of profit is 50%, 50 out of every 100 transactions are profitable, and 50 transactions are loss-making. If the profit-loss ratio is 1:1, if the trading continues repeatedly, the investment funds will always be in place. In a game of decreasing negative sums. The more the number of transactions, the faster the loss of funds.

From the calculation formula of the profit-loss ratio, we can find a way to increase the profit-loss ratio: increase the average profit margin or reduce the average loss margin. The first way to achieve these two points is to increase the profit of each transaction and reduce the loss of each transaction.

In this method, it is difficult for investors to control profits, but they can prevent the maximum loss of each transaction, which is often referred to as stop loss. Set the top loss margin for each transaction. Once the conditions are met, sell even at a loss to control the loss margin and prevent significant losses from being deeply locked in. This is also one of the reasons why stop loss is essential.

However, although the profit margin is difficult to control, the position size at the time of profit and loss is controllable. This involves the second method of improving the profit and loss ratio-position management. Reducing loss-making positions and increasing profitable positions can also increase the profit-loss ratio.

However, the profit-loss ratio is a lagging indicator, and it needs to be counted after doing a lot of transactions. It isn't easy to guide the profit-loss ratio when entering the market. Forcing the profit-loss balance may result in a profit or loss, or it may run out of the market. Therefore, investors should make a plan during the transaction. After making a profit according to the project, the cost line can be set as a mandatory exit point, which can at least guarantee no loss. On the premise of ensuring the floating profit space, the profit can be appropriately used to gain a larger market to expand the profit-loss ratio. In the long run, the profit space will increase day by day.

TIPS

1: Please stop the loss in time to control the risk within a small range

2: Please enlarge the profit

3: Please insist on using a fixed percentage of the current total funds (such as 3%~5%) to control losses

4: Please insist on using a fixed percentage (9%) of the current total funds to obtain considerable profits. The specific profit-loss ratio varies from person to person.