What does win rate to profit loss ratio mean in forex trading?

All investors who enter the foreign exchange market mainly aim to make profits. In order to achieve the goal of making profits, investors will generally diligently develop trends in two directions: increasing the winning rate of the transaction or increasing the profit-to-loss ratio of the transaction. Under normal circumstances, there is a certain restraint between the two, too much pursuit of perfection and higher winning rate will reduce the profit-to-loss ratio, and vice versa. Therefore, how to correctly choose the winning percentage or the profit-loss ratio seems to be very important.

Before going into detail about winning percentages and P/L ratios, people first import a key trading habit – trading records. For foreign exchange traders, in order to obtain long-term profits, they must cultivate good trading habits, and a comprehensive trading plan is a key part of perseverance. The specific contents of the trading plan include: preferred trading strategies, the best trading entry and exit opportunities and their risk control standards. In order to implement your own trading plan, the key lies in persevering in making transaction records, thinking continuously, and giving feedback on your own trading plan.

Forex traders write down the elements of the decision-making transaction every day to see what happened at that time, let them make the decision to make the transaction, make a detailed analysis after the transaction, and record the results of winning and losing. If the trading results are profitable, it is appropriate to express the analysis at that time, and when similar or the same elements occur again, the trading records they have made will be very helpful for them to quickly make appropriate trading decisions.

A good transaction record must include many aspects such as transaction plan, transaction history, sales market evaluation and unsuccessful transactions. Cover all the thinking, the whole process of management decision-making and the final transaction results and thinking. A good transaction record is a matching and humanized teaching tool.

Win Rate and Profit/Loss Ratio

After implementing the appropriate trading habits, you can measure the winning rate and profit-loss ratio in the whole process of trading. First of all, there is also a definition of profit and loss ratio to establish the winning rate:

Win rate X = all frequency of profit / total number of trading sessions x 100%

Profit and loss ratio Y = average amount of profit/average amount of loss

On this basis, the overall profit and loss is:

Total profit and loss = all frequency of profit * average amount of profit - all frequency of loss * average amount of loss

According to the above formula, it can be easily obtained. Under the standard of profit and loss ratio of 1:1, the higher the winning rate of investors, the more profits they will get. But if the amount of each loss is much higher than the amount of profit, then the winning percentage will be worthless. Assuming that the average amount of losses is 1 and the trading frequency is 1, then according to the calculation formula: the profit and loss expectation of each transaction is Z=XY+X-1.

As shown in the figure below, it is the mathematical analysis model of the profit and loss of a transaction. It can be seen that a higher win rate and a higher profit-to-loss ratio can significantly improve profitability. So, which method is more suitable for investors? According to statistics, the number of profitable transactions of technical professional traders in the UK is generally less than 40%. Therefore, for ordinary investors, the whole process of trading is very difficult to maintain. High project investment success rate. In foreign exchange trading, the sales market is also complex, and no technical or countermeasure plan can ensure that it is always available. Therefore, for ordinary investors, Qian Wan cannot pursue a perfect winning rate that is divorced from reality. It is important to increase the profit-loss ratio to make a profit!

From the calculation method of the profit-loss ratio, people find that there are two key ways to improve the profit-loss ratio: increase the average profit strength or reduce the average loss strength. First of all, the most convenient thing for investors to complete is to manipulate the greater loss of each transaction, that is, to set a stock stop loss in technical practice. Set a larger loss intensity for each transaction. Once the standard is met, the position will be forced to close and sell even if it loses, so as to avoid being trapped by deep stocks. Secondly, although investors cannot improve their profitability, the size of their holdings when they win or lose is indeed controllable, reducing loss-making positions and increasing profitable positions, that is, position management in terms of technical and practical operations. It can also increase the profit-to-loss ratio. In the end, every time an investor trades an order, a transaction service fee (spread, commission, etc.) will be deducted. Therefore, even if the winning rate is 50% and the profit and loss ratio is 1:1, the investment assets of the project will continue to decrease, and the more the frequency of transactions, the faster the depletion of assets. Therefore, investors should not carry out high-frequency transactions.

Investors should formulate a plan in the transaction. After making a profit according to the plan, the cost line can be set as a mandatory entry point, which can at least ensure that there is no loss. On the premise of ensuring the profit and loss of the indoor space for liquidation, it is possible to properly use the profit to win a larger market situation, so as to expand the profit and loss ratio. In the long run, the profitable indoor space will also increase day by day.