Hello traders, how is your trading journey? I hope that it will always be profitable. The market is dynamic, full of challenges and excitement. But it can still be "tamed" by applying good MONEY MANAGEMENT and RISK CONTROL.
If we are disciplined about this, I believe we will be able to become a winning trader while achieving consistent profits.
In this post I will share something important that I got from my trading experience so far. But before explaining further, I will give 2 illustrative examples as an introduction.
1. INSURANCE COMPANY.
Have we ever asked, where does the Insurance Company (PA) get the profit from? And what are the risks faced? PA gets money from premiums paid by customers. Customers get protection benefits if there is a risk of death.
The value of the protection can be up to hundreds of millions or even billions, even though the customer's premiums are only a few million. The comparison is very far between the premium value and the protection value.
The customer spends a small amount of money (pays a premium), but gets a large protection benefit (if there is a risk of death). PA gets small money (customer premium) but must spend big money if there is a risk of death of the customer.
Theoretically, on paper, PA is a bad business. If the small profit is small. But if the loss is very big. But in fact there is no PA that closed / bankrupt, right?
In fact, PA is getting bigger and bigger. Why is that so? Because there is a factor called Winning probability or Winning rate.
Winning Rate ( WR ) is the probability of an event occurring.
PA knows that even though the profit is small, the WR is high. And PA has estimated that even though the loss is large (if there is a risk of customer death) the WR is low.
Of the 10 people who enter (pay premiums), it is possible that only 1 person will claim insurance.
The amount of money that comes in (customer premium) is STILL BIGGER than the money that goes out (pays a claim). The end result is that the Insurance Company is still profitable!
2. CASINO GAMES.
Have you ever played casino gambling in Las Vegas / Macau? It's the biggest gambling place in the world. We can study the philosophy.
Casino owners (PK) get money from people who play gambling. PK spends money when a lucky gambler wins the Jackpot.
That's a lot of money. The gambler can get rich suddenly. Even though the capital to play gambling is only pennies, so it's not surprising that many people like to play gambling and hope for a miracle to happen SUDDENLY RICH through gambling. But in fact more gamblers go bankrupt / lose.
PK knows that even though the profit is small (changes from gamblers) but the WR is high. And PK has calculated even though they have to pay a large Jackpot to gamblers, but the amount of money that comes in from gambling players is STILL BIGGER.
The number of people who play in the casino is MUCH MORE than the people who win the jackpot. The end result is that the Casino Owner remains profitable and more gamblers lose.
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From the two examples above, what conclusions can we draw?
There are 2 variables, namely PROBABILITY and RESULT.
Probability is the Winning Rate (The probability level).
The result is the value obtained.
It turns out that the relationship between the two is inversely proportional. This is a law of nature that applies in all areas of life, not just trading.
HIGH PROBABILITY = LOW RESULT.
LOW PROBABILITY = HIGH RESULT.
Something that has a high probability of success or EASY TO GET, usually the results are small. On the other hand, something that has a low probability of success, aka HARD TO GET, is usually a big result.
EASY TO GET = SMALL RESULTS.
HARD TO GET = GREAT RESULTS.
This understanding is rarely realized by many traders. They are more interested in methods that offer a system "If the loss is small, but if the profit is Buesarr .." They tend to look for a large Win Loss ratio, for example 1: 2 or 1: 3 and even 1:4.
The point is that if you lose, it's small. But if the profit, WOW BIG. It can be 2x or 3x the loss value. Again in theory, this system looks good. However, the facts on the ground are more affected by the loss. The profit is just an illusion.
They don't understand that the better the win-loss ratio, the worse the winning rate. Their mindset is exactly like that of a casino gambler, not like that of a casino owner or an insurance company owner.
You may ask, is there a method that offers GREAT RESULTS WITH HIGH PROBABILITY? The answer is yes, but such conditions are extremely rare and rare. You can only trade once in 2 - 3 months !
For example in conventional business. At the end of the year and For big holidays, usually the needs of people who want to go on vacation (traveling) are increasing. This condition is exploited by sellers of travel tickets, lodging tickets, and tourist attractions, thus making product prices expensive.
At that moment they had the opportunity to make big profits because people's purchasing power and consumption were high. This is a rare moment that only happens once or twice a year. Relatively rare.
Back to trading..
Do not be tempted by the trading concept that offers "If the loss is limited, but if the profit is unlimited". If the loss is limited, but if the profit is unlimited. Wow that sounds really good. Sounds good.
Too bad this is just THEORY. In practice it is difficult to implement. If not, surely everyone would be rich through trading and no one would want to open a shop/build a factory.
I personally have a profit target of around 8 - 10 pips per transaction. I'm not interested in big profits because usually I can't wait for them. It can also be varied by using a trailing stop when the position is already floating profit.
And don't be too afraid of big risks that are only THEORY but in reality rarely happen. Remember, the illustration above. Casino owners are not afraid to pay the Jackpot because the probability is small. The facts on the ground are far more gamblers lose.
In trading, we must be able to measure the probability of risk and profit. How likely is that to happen?
Therefore, it is very important to have a journal that contains records of past profit and loss experiences. From there we will evaluate many things so that we can improve trading performance better.
In the end, what matters is not how big the RESULT (profit / loss) is but how big the POSSIBILITY is.
Probability is more important than Outcome. As the saying goes, It's easier to catch 1000 anchovies than 1 whale.
Forex is Unpredictable. The market is very dynamic and full of uncertainty. BETTER a small profit but it is in sight than a big profit but still in the form of potential. Don't be dazzled by big profits that are only THEORY but in fact are difficult / rare.
But there is nothing wrong if you still want big profits. The important thing is to be prepared for the consequences, namely to wait a bit longer or risk the price to reverse before touching the TP level.
Trading is not about you RIGHT or WRONG, but you are READY or NOT with all the consequences.
HOPE IT IS USEFUL.
Please SHARE If Useful.
CONSISTENT AND OPTIMAL PROFIT GREETINGS.
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