The summary of the actual plate of tens of millions of traders: Do these points,
2024-07-15
Many traders may have experienced this: when investment banks or analysts recommend strategies, they will first vigorously promote how high the win rate or accuracy rate is, but the results of actual trading operations according to these strategies are usually a "disaster".
Generally speaking, as long as it is related to high win rates, it can always attract the attention of traders at the first time. After all, high win rates cater to human nature, while low win rates are more counter-intuitive.
However, there are experimental results that prove that trading systems with low win rates are often more likely to succeed than those with high win rates, which seems to subvert our general cognition. Before discussing this topic, we need to introduce a few basic concepts: win rate, profit and loss ratio, and the Kelly formula.
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1. Win rate:
This concept is easy to understand, which refers to the number of victories, that is, the ratio of profitable times to the total number of transactions. For example, if you have made 100 transactions and 55 of them are profitable, then the win rate is 55%.
2. Profit and loss ratio:
The profit and loss ratio refers to the ratio of the profit and loss amount of the transaction, which directly affects the change of the net value of the trading account.
It is worth noting that a high win rate does not necessarily mean profit. If you make a profit 9 times and lose 1 time, with a total profit of $10 and a loss of $20, you still end up with a loss of $10.In other words, even if the probability of winning is high, a single substantial loss can be enough to wipe out all the profits earned through hard work.
3. Kelly Criterion:
This formula is used to calculate the proportion of capital that should be risked on each bet when the winning rate and the ratio of profit to loss are fixed.
The formula can be expressed as f* = (bp - q) / b, where f* is the optimal position ratio, b is the profit-to-loss ratio of the bet, p is the winning rate, and q is the losing rate, which is 1 - p.
It should be noted that the odds and winning rate in this formula are fixed, making it more suitable for gambling. In real trading, the winning rate is unlikely to be fixed, and while the profit-to-loss ratio is somewhat controllable to a certain extent, it cannot remain unchanged.
When evaluating trading strategies or trading systems, a deep understanding of these concepts is crucial.
The relationship between the winning rate and the profit-to-loss ratio:
From the table below, we find that:
- With the same profit-to-loss ratio, the higher the winning rate, the higher the optimal position ratio;
- With the same winning rate, the larger the profit-to-loss ratio, the higher the optimal position ratio.The different combinations of win rate and profit-loss ratio also affect the changes in the account net value curve.
A study conducted by an organization on 43 million actual traders showed that 83% of traders are losing money, with frequent traders making up the majority.
Surprisingly:
Among traders with a profit-loss ratio exceeding 1 (with a win rate of 50%), more than 50% achieved stable profits after 12 months. Traders with a low profit-loss ratio only had 17% achieving stable profits after 12 months.
This result further confirms that successful traders tend to pursue a higher profit-loss ratio, which is also the key to increasing account net value.
So, as an ordinary trader, how can this be achieved?
From the calculation formula of the profit-loss ratio, to achieve a higher profit-loss ratio, it is nothing more than increasing the average profit amount, reducing the average loss amount, and expanding profits as much as possible while reducing losses.
This seems simple, but the specific operation will be quite difficult, requiring long-term training. During the training process, we still need to pay attention to the following points:
1. Always put risk and consider the exit firstThe correct steps for learning trading should start with the exit strategy, striving to improve the profit-to-loss ratio, and then move on to entry techniques to increase the success rate of trades.
Perhaps it is difficult for us to control profits, but the risk of each loss and the maximum drawdown are still controllable. Of course, we also need to consider factors such as trading frequency, emotional trading, blind trading, and "black swan" events.
2. Make good use of technical analysis tools, especially support and resistance levels.
Experts also use various technical indicators or patterns to judge entry and exit positions, but the most commonly used are actually the most basic support and resistance levels. For example:
When going long on a certain product, traders can enter when the price effectively breaks through the resistance level, and set a trailing stop loss below the resistance line.
These two lines can be said to be the "lifeline" of trading. Making good use of them can make entry and exit positions more reasonable and accurate, thereby increasing the success rate and profit-to-loss ratio.
3. Reasonable allocation of trading positions.
Position allocation involves the proportion of initial capital allocated to different trading products and the skills of adding or reducing positions.
Some people like to divide the tradable funds into four equal parts and gradually add positions, while others prefer to invest all the funds in the same product at once. This needs to be set according to the trading plan and market fluctuation patterns, but the ultimate goal is to maximize the profit-to-loss ratio as much as possible.
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