A divine ratio in trading is the risk-reward ratio. The profit-loss rate is what will directly affect your profit on all trades.

Why are profit and loss so important?

Simply because it has the ability to make a system profitable even with a low win rate.

Peter Brandt earns 40% of net profit each year with a win rate lower than 50%, which means that he entered 10 orders and killed more than 5 orders, and still made a profit.

Mark Minervini can execute orders without worrying because he knows when the market recovers he will get it all, even more than he lost.

The secret lies in the profit-loss rate. Legendary traders all make more per win than their loss per losing position.

Paul Tudor Jones once said that if a contract does not have the potential to bring you five times the amount at risk, you will not enter.

So a very simple way that you can perform on all trades to increase profits is to increase the rate of profit and loss. To increase the profit-loss rate, we can prolong the profit-taking, but in the long run, this will cause you to encounter many cases where the price has not reached the profit-taking rate, which has reversed, causing the winning rate to decrease significantly.

The other way is to shorten your stop loss by pointing to markets with a short stop loss.

Strength of 1 shortstop loss

Point to positions where you can place your stop-loss short enough, as close as possible. Any market that stops losing too far from the entry point should be discarded no matter how beautiful it is.

Example 1:


The -26% stop loss is too far, meaning the stock has to rise 78% to get an RR 3: 1. Very low likelihood.

Example 2:


Stop-loss closer to your entry point: -13%. If you want a 3: 1 RR ratio, the stock needs a 39% increase. Absolutely achievable. This market is worth it.

Example 3:


The stop loss is very close and very reasonable! Only 7%. It is both far enough away to avoid false breaks in daily price volatility, and close enough for a high RR. The stock only needs to increase by 21% to get an RR of 3: 1.

Remember that the stop loss must be reasonable first

This point is very important, the stop loss must first be reasonable and then consider whether it is far or near. If a stop loss is reasonable and it's a bit far from the entry, you plan to pull it close is FALSE.

We will point to markets that have a reasonable stop loss (far enough away to avoid normal price movements) and close to the entry point for a good RR. In the long term, profits will increase well

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