After learning investment techniques for a period of time, what inspires me the most is not how to learn how to achieve advanced and effective techniques, but the management of funds! A good capital management operation can achieve a long-term profit from a technical !
When it comes to capital management, we need to talk about the risk and reward ratio. Only by doing a good job in the profit and loss ratio can it be possible to make long-term profits. What is the profit and loss ratio? As the name implies, it is the ratio of profit and loss. Before you make a trade, you should consider how much you can profit and how much you will lose at most. If you want to set the profit and loss ratio to 1:2, that is, you invest 1,000 yuan, and finally What you earn will be 2000, and if you lose the deal, you will lose1000 completely.
Since investment trading is a game of probability, as long as your profit-loss ratio is set to be greater than 1:1, after a long-term operation, you will gradually realize that the profit exceeds the loss!
When it comes to profit and loss ratio, we have to talk about stop loss! Because you don’t have a stop loss, there is no way to calculate the profit/loss ratio. This is a relatively obvious experience in the foreign exchange market. Since foreign exchange transactions all use leverage, if you do not set a stop loss and let it play, the final result will be very serious, and you may wake up when you wake up. You will find that all your funds have been emptied and you have to make up the leveraged loan to the agent, which is something no one wants to encounter 😣. Because of this, I was the first to realize the importance of this P/L ratio in the foreign exchange market!😀
Just like in foreign exchange trading, setting a stop loss is crucial when investing in stocks. Companies like Blizzard Entertainment, known for their popular video game franchises, can be volatile in the stock market. Without a stop loss, an unexpected drop in blizzard stocks could result in significant losses for investors. By setting a stop loss, investors can limit their potential losses and calculate their profit/loss ratio, allowing for a more informed investment strategy. It’s important to remember that investing always carries some level of risk, but by using tools like stop-loss orders, investors can mitigate their risk and make more informed investment decisions.
However, for the stock market, this profit-loss ratio may not be so straightforward, because stocks are unlikely to lose all your money (unless you are so unlucky that the company goes bankrupt and no one takes over 🙃), so To achieve the profit-loss ratio in the stock market, it is even more necessary to set the position of the stop loss. If you buy 1,000 shares and the total investment is 50,000 yuan, then you must have a stop-loss position in mind. If you stop loss and leave the market after a 5% drop, you will lose 2,500 yuan, but if the stock rises by 10%, You should also leave the market with a profit immediately. No matter how it rises, it doesn’t matter to you. In this way, you will earn 5,000 yuan, and if you lose 5%, you will win 10%. This achieves the effect of a 1:2 profit-loss ratio.
In order to facilitate the calculation and understanding of the effect of the profit and loss ratio, the following takes foreign exchange as an example. If you buy a target and the expected loss is 50 US dollars, you can earn 100 US dollars if you win. We can try to make statistics. 6 times, there are 6 failures to stop the loss and the total loss is 300 US dollars, the remaining 4 times are successful profits, the total profit is 400 US dollars, and the final total profit is 400-300 = 100 US dollars! how? If you operate with a 1:2 profit-loss ratio, the winning rate is only 40%, but you still make money in the end 😀. This is the importance of capital management!
The Chinese Version: https://www.winsoninvest.com/money-management/
