All traders know that any transaction contains two parts: entry and exit. It can be said that the latter is more important than the former, because it is the position that ultimately determines your profit and loss.
Everyone is eager to enter the market, which is understandable, but unfortunately, most online trading strategy articles ignore the "back" of trading, that is, risk management and how to withdraw from the market at an appropriate time.
The same strategy applies in the opposite direction.
From entry signal to exit signal, many strategies can be reused. For example, if you use your own strategy to find the buying signal, you can also use the same strategy to find the selling signal.
However, this is a simple way to solve a very complicated problem, and it still emphasizes admission rather than withdrawal from the market.
Think of trading as a game.
People often look for a strategy to answer this question: "When do I start trading?" But this is the wrong question. Although some people make a lot of money through a transaction, it is only an opportunity; Most people even exclude traders who succeed through multiple transactions. The question you need to answer is "When does my transaction start?"
Every transaction is an adventure. This has both advantages and disadvantages for you. You may make a profit or lose money. So we call every transaction you make a "game". There is no limit to the number of foreign exchange "games", and the repetition of these games is called "iteration".
But by combining them, we get the game theory. There is a reason why people who are good at game theory are good at foreign exchange. It focuses on the outcome of the transaction, not just the beginning of the transaction.
Game theory in trading: how much is the bet?
In fact, using game theory can make you completely forget the admission signal: the trading trend goes up and down, just like flipping a coin, the success rate is 50%.
Generally speaking, if someone flips a coin with you to bet: if you guess correctly, you give them $65,438+00; You guessed it. They gave you 20 dollars. Do you want to bet? What is certain is that you have a 50% chance of winning $20 and a 50% chance of losing 10.
Let's make a better deal (assuming you are not a millionaire): if you guess right, they will give you $654.38+$00,000-but if you guess wrong, they will get your house. Is this a good deal? Opportunities are equal-you can say that the "strategy" here is the same. But the 50% probability of losing $ 10 is different from the 50% probability of losing the house.
What makes this strategy a "good" or "bad" strategy is not how accurate your prediction results are, but how you handle your own risk exposure.
Game Theory in Trading: Iterative Cost Reduction
If we flip a coin instead of one-off, it can be repeated over time. Then the second case-$65,438+0,000,000 or your home-can't really iterate, because you can only lose your home once.
But you lost $ 10, and you still have money to play. Maybe lose two or three times? Suppose four times. That's unfortunate; The probability of this happening is only 6.25%. However, if you win next time, you can continue the game. Over time, if you play enough, you will win twice as much money as you lose, and you will continue to make profits.
Of course, you can't make $6.5438+0 million in one transaction. The premise for you to earn that much money is that you earn 200 thousand times.
Gambling and investment
The difference between gambling and investment is that if you only pay attention when you enter the market, then you can only count on luck to make money, which is also called gambling. If you care about how to exit the market, then you are thinking about the return on investment.