A brother asked me, how can I organize the logic of trading and enhance trading awareness? Firstly, brothers need to clarify one thing:, Is there any certainty in the transaction? The so-called certainty refers to a certain form, Or in other words, when several conditions are met, The price will definitely rise or fall, or the magnitude of the rise or fall can be determined 🔺 Is there 100% certainty? I don't think so. So far, no theory has been able to find even a certainty. If you have found it, congratulations, because with this certainty, you can obtain unimaginable wealth. Since such certainty cannot be found, the way to achieve profitability is to utilize probability. Because there is no deterministic form, every transaction result has uncertainty. So how can we make a profit? The most reasonable way is to focus on probability. There is a truth to emphasize again: even the highest probability is not certainty. Let me give you a simple example. You play a game with a total of 54 cards. The rule is that if you draw the king, you lose, and if you draw the rest, you win. Your probability of winning is 53/54, which is quite high, isn't it. You have 100 yuan. If you win, the other party pays you 10 times the bet. If you lose, you lose your bet. The return to risk ratio is already high enough, 10 times. Everything is beneficial to you. So you bet all 100 yuan this time. In the end, you may just memorize it and lose without a penny, losing everything at once. So certainty is certainty, and high probability is high probability. The methods of the two are completely different. Because in a deterministic situation, all fund management strategies, stop loss strategies, overweight strategies, and so on, become redundant and useless. But as long as there is uncertainty, even if it is a small probability, you need to develop relevant strategies. For example, in the game above, you need to consider only taking out a portion of the total principal as a bet each time, rather than betting all at once. This is the essence of the transaction. If we cannot agree with this, everything we talk about loses its foundation. You can indeed choose not to set a stop loss, but if you do not set a stop loss in the trading system, it is impossible to determine the initial loss and the risk return ratio, and everything about the trading system cannot be carried out afterwards. So taking stop loss as a trading axiom does not mean that you have to do something, but rather that if you don't do it, the rest cannot be done. Everything in the transaction follows a logic, step by step. Many people are not aware of this issue. ---------------- 02. The method to achieve profitability should utilize probability If everyone agrees that the method to achieve profitability should utilize probability, then two key elements are crucial: The first is the winning rate; The second is the degree of profitability of a single transaction. The first one is that if you win more times, it is easy to profit because you cannot find a certain way to win, so you need to find ways to win as much as possible. The second point is that even if you win more times than you lose, you only win the small ones, and once you lose, you lose the big ones, and you may not necessarily make a profit in the end. Therefore, on this basis, the concept of return risk ratio emerged. Some people say, I don't care so much, every time I buy, as long as I win. Okay, then you might vomit blood at a loss once. There should be many people who have had such an experience. Even if you win many times, it's not enough to lose this time, so veteran investors have learned well that when the situation is not good, they will still lose. It is the prototype of stop loss. Of course, this stop loss is a primitive stop loss that was not established within the framework of the trading system, relying only on years of trading experience. Gradually, you will find that setting a stop loss level before each trade is much better than being forced to liquidate when problems arise. After setting the stop loss level, it is also easier to judge the quality of a transaction. For example, if you take on 5% of the risk but only make 2% of the profit, how do you think this is better than trading? You are satisfied with earning 2% without a stop loss level. But when you understand that your 2% profit was obtained at a 5% risk, your perspective changes. This is the origin of the return risk ratio. So when you realize this, you will re-examine every transaction. Many of the previous transactions are now a bit unreliable. Hehe, this is your progress. So the conclusion is: trades that make money may not necessarily be good trades. ----------------------------- 🔺 03. Let's reorganize: 🚩 Due to uncertainty, we cannot always operate at full position every time we place a bet. We need some skills in position allocation. This is the origin of fund management. 🚩 Effective fund management can enable us to face market fluctuations and our own operational mistakes more calmly. 🚩 Because we don't want to bear excessive losses every time, we determine the stop loss level before each trade to control the risk of each trade. 🚩 Because we hope to achieve higher returns while controlling risks, we need a strategy of increasing profits, which is to cut off losses and let profits run. This is the framework of the trading system. With this framework, let's take a closer look at many specific issues. So far, starting from the inherent uncertainty of trading, I have gradually extended it step by step and established a rough framework. Now that we have established the framework of the trading system and developed suitable strategies for fund management, stop loss, overweight, take profit and exit, what else is left? It's about finding the optimal combination of win rate and return risk ratio. In my opinion, all schools of trading are actually trying to solve this problem. If you agree with my above logic, you should understand that the disputes among various factions are actually focused on different understandings of this issue, but they all need to be established within the framework of the trading system. In this framework, choosing the best combination of winning rate and return risk ratio that suits oneself is the direction you should strive for. Encouragement together!