How can professional traders gain an advantage in financial speculation?

If you don't know what your advantage is, then you have no advantage!

What are the advantages?

The word advantage comes from gambling. This advantage refers to a person's systematic advantage over their opponent. Take blackjack as an example. When a player notices that a lot of small cards have been dealt, then the probability of a big card being dealt next is high. The player can gain a temporary advantage over the dealer. As long as the dealer's card combination is less than 16 points, the dealer must continue to ask for cards. If there are still many big cards in the deck, the probability of the next card being blown by the dealer will increase. So sophisticated players bet small most of the time, because the advantage is on the dealer's side. Once the player gains an advantage over the dealer, they will increase the bet.

Advantages in trading

Speculative trading is a zero-sum game. 90% of the players in the market are long-term losers. As their player, you must find an advantage over 90% of the players in order to become a long-term winner. I summarize the advantages of long-term winners into three points. As a pragmatic trader, you must work hard in these three points. You must not only be excellent in these three points, but also be perfect (in the sense of execution).

approach advantage

appearance advantage

Fund management advantages

approach advantage

A rule with an advantage in the market is that the probability of the market moving in a particular direction within an ideal time frame is greater than the normal probability. We can recall the example of blackjack. In most cases, traders have no advantage over the market. We need to wait patiently. When traders have an advantage over the market, they trade again and again without hesitation, fear, or hope.

To find an entry advantage, you must use support and resistance levels. The probability of the price going up at the support level is greater than the probability of going down, and the probability of the price going down at the resistance level is greater than the probability of going up. Therefore, when we go long at the support level (stop loss is placed below the support level) and short at the resistance level (stop loss is placed above the resistance level), we have a certain probability advantage over the market. You have to watch it. Basically, all the famous entry rules on the market must be attached to some form of support and resistance level. Such a setting not only has a probability advantage, but also makes it convenient for traders to set stop loss levels.

From this basic entry advantage, traders can add advantages such as trends and oscillators.

appearance advantage

A rule that has an advantage in appearance must comply with the basic principle of truncating losses and allowing profits to run. Whether you are doing high-selling, low-sucking, or unilateral trend trading, truncating losses controls risk and increases the risk-reward ratio.

The truncation loss tells us that before each opening, we must set a stop loss level with falsifiability. What is falsifiability? Falsifiability is that before the price breaks through the stop loss point, we first assume that we have made a direction and continue to hold the position. Once the price breaks through the stop loss point, we must admit that we have made a mistake and have to position squaring to leave the market.

A trader who does not set a falsifiable stop loss level cannot prove whether his trade is correct or wrong, and is prone to let losses run. The following chart shows the comparison between truncating losses and letting losses run.

Let Profit Run tells us not to trade with the idea of making a small fortune. Since you have taken a lot of risks to enter the market, once you are in the right direction, you must hold your position until the end of the trend or the trend reverses, increase the risk-reward ratio, and smooth out the previous records of multiple stops. The following is a comparison chart showing the truncation of profits and let profits run.

Fund management advantages

A rule that has the advantage of money management can, on the one hand, control the risk of bankruptcy to zero and maximize the preservation of funds when the transaction is not going well, and on the other hand, maximize profits when the transaction is going well.

To achieve this, traders need to reduce their positions when trading is not going well, increase their positions when trading is going well, and avoid taking positions when they have no advantage over the market.

Fixed percentage money management is a very popular method that is also very stable. I would recommend all individual traders to try this type of money management.

Her basic calculation formula is as follows:

N represents the maximum loss per trade, generally set within 5% (considering your own acceptance). The stop loss distance is equal to the open position - stop loss level (you can also calculate the spread and slippage).

The setting of the stop loss level determines the stop loss distance. The setting of your mileage may vary. There are two options: fixed stop loss level and non-fixed stop loss level. When we choose a fixed stop loss level (such as placing it at point Y below the resistance level when going long), it actually becomes a fixed position amount of money management method. This method does not take into account that market fluctuations are changing. It is easy to calculate the position volume with a bankruptcy risk greater than 0 because of the small stop loss distance. The non-fixed stop loss level takes into account the fluctuations in the market. When the market fluctuations become larger, our stop loss distance becomes larger and the position volume becomes smaller. When the market fluctuations become smaller, our stop loss distance becomes smaller and the position volume becomes larger.

We can use ATR to measure market fluctuations, or we can simply use MT4 to measure points per square.

The larger the N, the smaller the stop-loss distance, and the larger the position. For example, if 2.5% becomes 5%, and the rest remains unchanged, we can easily double the system's profits. However, we also need to consider that the maximum retracement also increases accordingly. When the system retracements to 50%, you need 100% profit to get the funds back to the starting point. This is very difficult, and few traders can afford such a large retracement. Therefore, when we consider the N% parameter and stop-loss distance, we need to measure whether we can afford N% single absolute loss, whether the risk of bankruptcy is greater than 0, and whether the maximum retracement can be tolerated. We need to make a balance between these three. There is no best fund management, only personal significance The most balanced.