Want to make money in Forex trading? You have to be grateful for those small losses first

I really appreciate the small, nasty losses that keep traders smarter than me out of profit.

To truly understand the "same origin of profit and loss" is the premise for traders to make profits. Sometimes, profit and loss are not only the same origin, but even the same body. I have seen many trading systems, when backtesting, the hit rate can reach more than 90%, and under the premise of high hit rate, you can also have an overall profit and loss ratio of more than 2:1. Without exception, once these systems are put into the real market, they are all lossmaking. - Otherwise, all the money in the world has been made by one person, and the market is not a market.

There are many reasons for the loss, some are inadvertently looking from right to left when backtesting the subjective system, opening the perspective of God; some are unknowingly using the "future function"; and some are because the backtesting time is too short and does not experience a complete "high volatility - low volatility" cycle. These are the reasons for the loss of the trading system that is profitable on paper.

Stable and profitable trading systems are hard to come by. If developing a system is often "bold assumptions, carefully verified", the "assumptions" here are actually the result of a lot of explicit and implicit thinking. The possibility of a blind cat bumping into a dead mouse cannot be said to be zero, but it is very small. This kind of thinking needs to be continuous, focused, and consistent, so that there is an epiphany like a blow.

The focus of this thinking process should be on how to lose money. A stable and profitable trading system must have clear and clear loss factors.

Specifically:

First, at the level of a single trade, there must be no less than 1/3 of the trade loss. The essence of loss is to release risk. Therefore, in a stable profitable trading system, the amount of a single losing trade must be guaranteed. A trading system with an excessive winning rate means a huge risk of collapse. A typical example is the "die-hard" strategy. Just looking at the winning rate, it will be very high, and there is no channel for risk release. This strategy is not advisable. Small losses are essentially risk release while paying a small amount of money. If a trading system wants to make a stable profit, this link is indispensable. From an experience point of view, a winning rate higher than 70% tends to be biased towards "scalping". The channel for risk release is not enough, and the requirements for skills are also higher. Therefore, in a well-controlled trading system, the proportion of a single loss should not be less than one-third.

Second, at the overall performance level, there must be three to five consecutive losses. In addition to releasing the risk of a single trade through a single loss, the trading system must also have consecutive losses to release systemic risk. Here are four meanings:

First, a normal (though high) winning percentage cannot be guaranteed without consecutive losses. This is not much to say.

Secondly, without continuous losses, there must be no continuous profits, and the entire trading system has no possibility of creating "step-up" transactions, and the profitability of the trading system will be called into question.

Third, without continuous losses, the threshold for a trading system would not exist.

Fourth, only when there are continuous losses can a trader have a stage to exert value. Controlling the frequency and amplitude of losses can save risk and profit, and is an important source of profit. Only when there is a basis for continuous losses in a trading system can a trader have a stage to perform. Take the example of the double moving average system. An important way to improve the double moving average system is to filter out the intersection points where losses occur through channels (dynamic and static). This filtering process is the trader's job. Without this job, the trader becomes an orderer, and the interest of trading will be greatly reduced.

Third, at the level of system development, it is necessary to think about the interests, hobbies, and habits that the trading system owes itself. In addition to digital losses, there is another kind of loss that is necessary, that is, the cost of developing the system must crowd out the interests, hobbies, and habits of traders. The trading system is stable and profitable, and the "debt" in life is also a necessary part. Or on several levels:

Literally stable profit itself is difficult. No matter how expensive a funny official is, it is easy to go downhill. Comfortable head patting can also create a trading system, but you can rest assured that this trading system will either fail the backtest or the real market.

Traders and trading systems need a process of running-in in order to experience the test of real trading. Traders are skilled in controlling their own trading systems in order to get rid of negative states such as hesitation, hesitation, and inability to hold orders. During the development process, traders will experience emotions such as hesitation, doubt, and despair, and then experience a nirvana, so that the trading system can be like Iron Man's armor and become one with the trader. This process of tempering is like learning from each other, like grinding. "Cut, learn, carve, grind", any word is uncomfortable.

visible:

The so-called "stable profit" means continuous and controllable losses. - Without continuous losses as a threshold, trading profits will be diluted indefinitely; without controllable losses, trading profits will be infinitely recovered.

The so-called "continuous progress" is to continuously and controllably owe yourself. - Without continuous debt, the mind will go with the flow, it will be difficult to focus, and it will be impossible to improve; without controllable debt, life will be out of balance, and traders will also go crazy.

Profits and losses come from the same source, and the focus is on losses. Just like being a thief, you must not only eat meat, but also be beaten, and the key is to be beaten.

It's hard to grasp this degree. Trading is a practice, just like life is a practice. Every trader is always on the road.