Hello everyone, this is WenLanXiaoWu What we introduce in this issue is Brent Penfold's The Universal Principles of Successful Trading Brent Penfold began his career at Bank of America in 1983 as an institutional proprietary trader With thirty years of global index and Practical experience in foreign exchange futures He is also a Chartered Futures Investment Advisor He used simple, mechanical models Long-term performance in the Nikkei Index and Hang Seng Index across fourteen international markets including the S&P 500 Trade in liquid markets He also wrote professional books such as Trading the SPI His book, The Universal Principles of Successful Trading For individual and institutional investors a framework for building a systematic trading strategy Technical analysis and complex market forecasts Might help people explain the market But it is difficult to bring sustained profits alone What really determines whether the account can be in Survive in the long game It is a clear understanding of risks and meticulous money management, as well as proven and capable Strictly enforced trading methods Now, let's open this book Look at the long-term profitable market minorities What key principles were adhered to Traders who are able to remain profitable over a longer period of time Less than or even far less than ten percent of the total population Ninety percent of traders will do so within the first ninety days Loss of capital prepared to take risks The deep roots that lead to nine out of ten losses The reason is not just psychological quality But ignorance, gullibility and laziness Many people expect to make easy profits by buying and selling Blindly listening to hearsay Untested trading theories and a charting program that looks perfect But I don’t want to test these myself Does the method really work Continued play in financial markets The law of difficulty operates The market is bound to disappoint most participants Make funds available to the disadvantaged majority hands, flowing into the hands of a powerful few So a trading idea If it's too good to be true A historical equity curve If the smoothness is almost perfect On the contrary, we should remain vigilant When the public opinion in the market is highly consistent almost everyone is right When a transaction feels comfortable This consensus has often been fully absorbed by the price Fewer people will be willing to enter the market afterward The original trend may be reversed The market will not change because of one transaction Seems simple, reasonable, or reassuring Let most participants profit easily The first step in trading is to accept Markets are inherently uncertain Long-term survival does not depend on The secret to predicting future trends It’s about being prepared to lose money Loss is a necessary part of trading Only by maintaining each loss at The small amount the account can afford Only then can you remain in the market long term and allow profitable trades to fully develop In specific operation When a deal doesn’t go as expected Don't make excuses Don’t keep moving your stop loss point in an unfavorable direction either You can follow your own trading time limit Set clear in advance Price stop loss and time stop loss For example, a long-term trader could take last week's The lowest price is used as a reference stop loss point Once the market hits a given position Just exit as planned Process failed transactions quickly Prevent wrong positions from continuing to occupy funds is in the trading game The first priority for survival During the first three years of trading, traders Several typical mistakes are often made repeatedly The problem in the first year is mainly that there is no trading plan No sense of stop loss And used to cover positions to dilute costs For example, if you buy a stock at $6. 6 The stock then fell to $6 Newbies tend to keep buying Reduce the average holding cost to $6. 3 Expect prices to rebound Although cost figures have been reduced The amount of money exposed to risk has doubled If the stock price continues to fall Accounts will also shrink at a faster rate Covering positions does not prove that the original judgment is correct Just let a deal fail Transactions take up more capital Entering second year Traders begin to accumulate some experience It is also easier to become superstitious about complex technical analysis they'll be on the chart Overlaying more and more indicators Trying to use past market trends to fit future trends When an indicator fails to predict changes Just add another indicator Eventually falling into the misunderstanding of curve fitting At the same time They are often eager to pocket small sums of money But reluctant to deal with losses Worry about losing profits as soon as they appear So sell too early Faced with a position that continues to fall But constantly adjust the original stop loss position The result is that we can't win Can't afford to lose either Prediction traps also often occur at this stage Many people are obsessed with Eliot Elliott Wave Theory Trying to ride through price waves Determine the top and bottom points in advance Or rely on Gann Theory I hope to use geometric angles and Time period prediction of trend turning The most tempting thing about these tools is to allow traders to generate The illusion of being able to control the market To catch the top and bottom in advance People will constantly try to trade against the trend Repeatedly buying low during a downtrend Continuous short selling at high levels in an uptrend Eventually, funds were consumed by the continuing trend There are also many people who use paper Paper Trading Only in a journal or spreadsheet Record fictitious buying and selling results in No real principal invested There is no independent monitor Traders can delete adverse records at any time change the rules Or reselect a point This kind of simulation hardly reflects the real market Human reactions and account changes in In the third year Traders are often already invested A lot of time, money and effort Easier to cling to past methods They may continue to overtrade Ignore positive expectations There is no real way to verify But blame failure on psychology or a difficult market Or you haven’t found the so-called trading secret yet Three years of mistakes look different The roots are the same No clear trading plan No effective money management No objective data was used Verify the method used If you want to survive in the market for a long time First, adjust your own Emotional Orientation Stop setting goals to get every trade right or make a lot of money quickly Instead, focus should turn to risk capital management Pursue 100% accuracy and frequent huge profits Necessarily requires taking higher risks The relationship between return and risk cannot be changed Want to get higher returns You must accept the possibility of greater losses This transformation requires letting go of Top-Down Thinking so-called top-down It is a preconceived belief that the more frequent transactions The more orders you place The more money you make This concept will continue to drive up earnings expectations eventually triggering overtrading More reasonable is the bottom-up approach Way of thinking (Bottom-Up Thinking) Start with what you can bear Risk of Loss of Principal Departure Then measure how much we will gain in the next twelve months Return is enough to satisfy yourself over the past few decades The world's major stock markets The average return is approximately 8 to 12 percent For traders annual risk capital return The goal is set at 20 to 30 percent Already a need for long term Goals that can only be achieved through stable execution The standard Brent Penfold sets for himself is The annual risk capital return rate reaches more than 20% Just build a set of advantages A method that will last for many years and achieve this goal stably There is no need to pursue higher to change or abuse it at will Excessively high earnings expectations will Forcing traders to increase their positions A normal account withdrawal may cause irreparable losses Therefore, before entering the market Clear financial boundaries must also be set Financial boundaries are like the entire Total Stop Loss in Trading Career You need to commit in advance Once the accumulated losses exhaust this risk principal Just admit that you are not suitable for trading for the time being Stop operations and leave the market Instead of continuing to add funds to recover the capital In order to truly implement these principles Still need to find a trading partner He is not necessarily a trader But it must be someone you respect Keep an objective distance from you Can't live under the same roof with you And are willing to carefully supervise your trading process Transaction partners play two roles Before formal transaction He assists you in completing method validation No proven method has positive expectations You should not invest real principal After formal transaction He's responsible for keeping you rational and honest Trading partners need to know your financial boundaries Moderate earnings expectations and money management rules at the end of each month You should submit clear information to him Transaction records and written reports According to these financial Benchmark check execution The point of supervision is not to evaluate you Is the market analysis wonderful But to prevent you from deceiving yourself after losing money deviation from plan Or break through the original risk boundary After completing the mental preparation The next thing to solve is the transaction The most important statistical questions in Risk of Ruin Bankruptcy risk is the cumulative loss reaching the bankruptcy point Probability of forcing traders to stop trading Is there any point of bankruptcy here The account balance must return to zero It can also be a loss of 50% or 75% of the principal or reaching personally set financial boundaries The first key to determining the probability of bankruptcy It is the risk capital assumed by a single transaction Suppose Bob, Sally and Tom all use Forex trading with System One with 56% accuracy The average of this system Profit equals average loss The initial risk capital of all three people is US$10,000 And take all the losses $10,000 is defined as bankruptcy Bob is a risk-taking trader Risk $2,000 each time Equivalent to investing US$10,000 in principal Divided into five capital units As long as you lose five times in a row He will lose all risk capital The probability of bankruptcy is as high as 30% Sally risks $1,000 each time Has ten capital units The probability of bankruptcy drops to 9% Tom only risks $500 at a time Has twenty capital units Even if you lose twenty times in a row You will lose all your principal Under the same winning rate and profit-loss ratio conditions His probability of bankruptcy drops to one percent This set of data explains Even using the exact same trading method The risk of a single transaction is different There will also be a huge difference in the final probability of survival Divide the risk capital into at least twenty units It is the basic starting point to reduce the probability of bankruptcy But there is no guarantee that you will never go bankrupt The second way to reduce the risk of bankruptcy method is to improve the accuracy of the system If the winning rate of System No.
1 is increased from 56% to 63% while keeping the average profit equal to the average loss Then Bob's probability of bankruptcy will drop from 30% to 7% Sally dropped from 9% to 0. 5% Tom dropped to zero percent However, in a strictly mathematical sense The risk of bankruptcy cannot truly reach absolute zero Winning rate, profit-loss ratio, capital unit or the bankruptcy point changes The probability of bankruptcy will also change The third way is to improve the average Profit to average loss ratio Futures money management researcher Nauzer J. Balsara studied this issue systematically Brent Penfold simulates with reference to his model Assuming a 50% win rate The account has twenty fund units and defines a 50% reduction in principal as bankruptcy Each group's profit and loss ratio is simulated thirty times The results show When on average every dollar lost When it can correspond to a profit of 1.
5 US dollars The risk of bankruptcy in the model is reduced to zero percent This result only applies to the specific parameters above Can’t be divorced from winning rate and bankroll Units and bankruptcy points are used separately In addition to the risk of bankruptcy Traders must also face Asymmetric Leverage The account lost 10% It takes about 11% of the remaining principal to earn back the principal To lose 30%, you need to earn about 43% If the principal shrinks by 50% The remaining funds must achieve a 100% return to return to the starting point Therefore, the risk taken on a single transaction is smaller The lower the account drawdown is The less you need to rely on Difficult yields to cover losses After controlling the risk of bankruptcy Next up is the search for the true holy grail of trading It is not a mysterious system whose predictions are always correct It combines positive expectancy with sufficient opportunities Positive Expectancy refers to long-term statistics Average capital risk per dollar How much net income can be brought back The calculation method is Profit probability multiplied by average profit amount Subtract the probability of loss multiplied by the average loss divided by the initial risk capital per trade Many people believe that the higher the winning rate The better the trading method But the cost of each of the four types is five hundred dollars Risk methods put together to calculate This is not the case System One has an accuracy rate of 60 percent Average profit and average loss are both $500 of every dollar of risk capital Expected profit is twenty cents Ten trades netted $1,000 The accuracy rate of the Securities Brokers Act is as high as 90% But you can only make three hundred dollars in profit at a time One loss costs $500 Its expected return is only 1% Fourteen, ten trades netted $700 The accuracy of the band method is 70% Average profit is $614 Average loss is $500 Its expected return is five percent Sixteen, ten trades can earn $2,800 The accuracy of the trend method is only 30% That is, an average of seven out of ten transactions will fail But it loses five hundred dollars each time The profit each time can reach 2,267 US dollars Ultimately, every dollar of risk capital Expected earnings are sixty-six cents Ten trades can accumulate a net profit of US$3,300 The winning rate of the trend method is the lowest among the four methods but relies on a higher average profit-loss ratio Achieved the highest positive expectations and net profit This shows that accuracy is only part of the equation When choosing a trading method What should really be measured is profit Probability, loss probability, average profit and The average loss collectively creates expectations However Positive expectations are only half the holy grail of trading The other half is opportunity (Opportunity) That is to say, in a year, we can Repeat the desired number of times Assume that the high return method is expected to reach 100% But there are only three trading opportunities a year Risk $500 each time Earn only $1,500 for the year Another frequent trading method Every dollar of risk capital The expected return is only 55 percent But it can provide twenty opportunities a year Ultimately accruing a profit of $5,450 Therefore, a methodology must not only have positive expectations must also be provided in reality enough trading opportunities Without changing the established rules The most pragmatic way to increase trading opportunities The approach is to use the same set of proven methods to be applied to more markets Monitoring one market becomes monitoring three markets Transactions that can be captured Opportunities will also increase accordingly Of course, increasing the market will also increase Margin requirements and potential losses The account must have sufficient financial capacity Positive expectations and opportunities identified The next step is to choose and fund Trading style that matches the conditions Only about 15% of the market Over time, a clear trend will form The other 85 percent of the time, most of the time In a state of shock and consolidation This structure determines long-term trend trading With short-term swing trading, the capital size There is a significant difference in winning rate and holding period Long-term trend traders want to Capture the 15% trend Typically twenty to thirty markets need to be monitored simultaneously Because no one can know in advance which market will develop a trend large enough General trend to make up for other losses So you can’t be picky about trading opportunities Russell Sands is a Turtle trader Capital managers and systematic trading experts He teaches the Long Term Trend Turtle Trading System Just need to be in 20 to 30 markets Build an investment portfolio in Take the actual changes in 2007 as an example Suppose you invest $1 million in risk capital This system has achieved considerable returns throughout the year But from February to late March of that year The account equity has been from $1. 25 million down to $500,000 less than two months Account withdrawal of $750,000 The drawdown ratio reaches 60% Even if the system is still profitable in the end There are not many individual traders either able to withstand such a process long term trend trading Accuracy is usually only 25 to 35 percent It relies on a few large profits Cover large amounts of small losses Therefore not only sufficient margin is required Also have the ability to withstand the long continuous retracements Individual traders with smaller funds Even if you like long-term trend trading by nature Nor may they be equipped to implement such Conditions for large investment portfolios In comparison Short-term swing trading is usually only Need to focus on one or two markets The holding period is generally one to five days The accuracy can usually be maintained above 50% The duration of account drawdowns is also relatively short More suitable for individual traders with limited funds American short-term trader Larry Williams In the Million Dollar Challenge (MDC) course, use Short-term trading methods based on price patterns and conduct live trading during training and require large investments Combined turtle system compared to This type of approach is beneficial to individuals Lower capital requirements for traders No matter which style When selecting a specific market, both Check several objective conditions Are prices and volumes transparent Is liquidity sufficient Is there any counterparty default risk and whether transaction costs are low enough Take Australian SPI Index futures as an example When the index is at six thousand two hundred and fifty When each point is worth twenty-five dollars The nominal value of a contract is US$156,250 Complete a buy and sell Transaction costs less than fifty dollars If using the same nominal value Buy and sell a portfolio of stocks using a one-way commission rate of 0. 15% A complete transaction costs $468.
75 Assume an average of one trade per week SPI futures traders pay all year round The cost is approximately $2,600 Stock portfolio traders will pay $24,375 Commissions and bid-ask spreads will Directly reduce positive expectations Choose one with high liquidity and low transaction costs Index futures or major FX markets is a pragmatic approach that preserves system expectations After choosing your trading style and market Next we need to build Three Pillars of Real Trading Money Management, Methods and Psychological Factors All three are indispensable But if there are no reasonable funds Managing and having positive expectations Psychological quality alone cannot Prevent continued loss of principal Fund management undertakes two fundamental tasks Protect principal when account declines Reduce the risk of bankruptcy Gradually expand trading size as the account grows Let profits grow geometrically Common martingale funds Martingale Money Management is doubling down after a loss And reduce the position after profit This approach assumes that after consecutive losses The probability of winning next time will increase but in separate transactions The last loss will not be automatic Increase the probability of next profit After consecutive losses or a one-way market move Doubling your position will only quickly magnify your losses Increase the probability of bankruptcy The right direction is the opposite Anti-Martingale Money Management Reduce contract size and risk exposure when losing money Gradually expand positions when profits are made Here we focus on three representative models The first model was developed by Larry Williams and is called Williams Fixed Risk When calculating contract quantity Multiply account balance times allowable Fixed proportion of risk taken Then divided by the largest single loss in history and round down Assume there is $30,000 in the account Fixed risk ratio is 10% That means you're allowed to risk $3,000 If the history of the method used The largest single loss was US$2,563 Then only one contract can be traded When the account balance exceeds $51,250 Ten percent of the risk capital is enough to cover Maximum loss for two contracts So it can be increased to two The second type is money management researchers Ryan Jones designed the Fixed Ratio method it increases by That is Delta Control the threshold for adding contracts Assume the initial account is $20,000 Increment set to $18,000 Increase from one contract to two Need to make a profit of $18,000 first Two contracts increased to three then requires every existing Each contract contributed $18,000 That's another $36,000 in total Only the account reaches about $74,001 Only three contracts can be traded This method requires each layer to add Each position has sufficient profit as a basis Avoid increasing exposure before the account has built an adequate safety cushion The third model came from trader Richard Dennis who taught Turtle traders the Fixed Volatility method using the ten-day ATR Calculate the daily fluctuation amount of the market and limit fluctuation risk to Within a fixed percentage of the account balance, such as two percent When market volatility increases The number of contracts allowed for trading will be automatically reduced When market volatility subsides or account balances increase The number of contracts will gradually increase This not only allows you to adjust positions based on account size It can also proactively adapt to changes in market risks However, no matter how reasonable fund management is, it cannot cannot turn a negative-expectancy method into a profitable system It is even more impossible to automatically determine a When a method has expired. Therefore You must also set a System Stop for the method itself The end of the system is through a single contract or equity curve for a fixed position Equity Momentum for Continuous Monitoring Methods If the equity curve falls below Preset system endpoints It shows that the original positive equity momentum has disappeared This method should be stopped No longer accept new trading signals from it When the equity curve returns to the end of the system Positive equity momentum resumes Only then did I consider reactivating this method The end point of the system is not to pursue profit maximization But in order to prevent the method from failing for a long time before financial boundaries are exhausted Stop investing risk funds in a timely manner Miss out on some initial profits It is the price that must be accepted to preserve the principal Money management solved every time How much risk should you take in trading The second pillar approach, then To answer why you entered the market When to stop loss and how to exit The core purpose of the method is to find Potential support and pressure lines in an uptrend Wait for the price to drop back enough to confirm Go long after trend support area in a downtrend Wait for the price to rebound enough to confirm Shorting after a weak pressure area A truly sustainable approach The rules must be clear Entry, initial stop loss and exit The location can be clearly expressed It does not rely on ad hoc charting or vague judgment Judgment or subsequent market interpretation Moving Average Convergence Divergence (MACD) Indicators such as Relative Strength Index (RSI) Mostly information derived from prices and often include adjustable parameters When a trader wants to let The historical equity curve is more beautiful Constantly modify indicator periods and parameters Make them coincide with past price movements This leads to the trap of curve fitting The more parameters The more room traders have to intervene in the outcome Its historical performance is harder to reproduce reliably If you use this type of indicator Variables should be minimized Fixed parameters and test them through objective tests Whether there are truly positive expectations Rather than repeatedly adjusting based on past market conditions After the strategy design is completed You still have to enter and escape Trader-Free Zone That is, let the trading direction Entry Points, Initial Stop Loss and Exit Rules All rely on being fixed, objective and Price rules that can be calculated repeatedly Can no longer adjust at will according to personal mood For example, a price channel with a fixed time window Compare the highest price to the lowest price over a period of time Or use the turtle trading method The 20-Day Price Breakout Rule The highest and lowest prices in the past twenty trading days Will not change due to different traders’ views Anyone facing the same price data The obtained values and directions should be consistent This is the meaning of objective tools In comparison Some subjective tools that lack statistical support Might just be for traders Provides confidence in entry Brent Penfold calls them placebo traders Placebo Traders Even if the analysis tools relied on There is no obvious statistical advantage in itself They may still rely on excellence profit from trade execution Use smaller positions and accept losses quickly and allow profitable trades to fully develop Therefore, what really brings about account growth is Not necessarily some mysterious ratio or complex prediction It’s about capital management and stop-loss discipline Exit rules and stable execution Instead of building confidence in On the subjective interpretation that cannot be measured A more reliable approach is to establish Simple, objective and independent price rules Then use real out-of-sample data Check whether it has positive expectations Psychological factors among the three pillars before funds enter the market will not determine the outcome of the transaction But when real money is invested it will become the connection fund The link between management and objective methods When there is a floating profit or loss on a position Consciousness and subconsciousness are prone to conflict Fear can keep traders from executing new signals Greed makes people refuse to quit Pain is tempting Modify stop loss and trading rules resolve this conflict It’s not about forcibly suppressing the subconscious mind Instead, let your subconscious see reliable data If the risk of every transaction passes Money management is restricted to a very low level The statistical probability of bankruptcy approaches zero At the same time, the methods used have been validated Have stable positive expectations Then it will be easier for traders to trust the rules Execute stops and exits as planned Before investing real principal Must be completed once in near real time Closed-loop testing of trading conditions This is the Thirty Emailed Simulated Trades test also known as TEST Just review it in your brain Or perform paper simulations alone in software There is no way to accurately verify the method no independent monitor Traders can skip negative signals at any time Delete loss record change the rules Or choose a better entry point afterwards TEST requires traders to Follow a complete trading plan State the buying or selling price, initial Stop loss position and exit rules and send instructions via email Send to independent trading partners Trading partners receive and save orders before the market opens Act as a virtual client advisor Record simulation results under actual market conditions Once the email is sent Unless the market changes before the opening As a result, the original instruction cannot be executed Otherwise, it cannot be revoked or modified afterwards To test the expectations of the method itself Only simulate one contract at a time Stock transactions can be calculated based on one hundred shares Avoid position changes interfering with results After completing thirty complete transactions in a row The trading partner returns the saved email and results Then divide the number of profits, the number of losses, and the average Profit and average loss are substituted into the expected formula In addition to checking whether the final expectation is positive Also check if the equity curve is relatively flat If most of the profits come only from One or two unexpected huge profits It is difficult to judge this method What is the advantage of stability Or just rely on luck If thirty tests form relatively uniform positive expectations The method passed the verification If expected to be negative should redesign the method Complete another round of TEST Instead of taking unverified Rules for investing real principal Fund management control risk Objective approach offers advantages TEST builds confidence in enforcing rules When the three really come together Psychology is no longer isolated willpower training but becomes the link that keeps the entire trading system running The Universal Principles of Successful Trading Explains the most basic aspects of financial markets The law of survival and accounting logic Can you make money from trading It never depends on whether you can Guess where the price will go tomorrow It's about settling accounts When the market trend is different from what you expected Decisively sell your position at the original price Limit each loss to the account Small numbers that can be easily afforded When account funds continue to increase in profits Follow the reconciliation rules Corresponding to the lot size of the expanded order As long as you risk less money each time to reduce the probability of bankruptcy to zero Meantime rule established average The profit amount is greater than the average loss Over the years Positive expectations will become banks The cash in the account is growing steadily This is WenLanXiaoWu We don’t pursue get-rich-quick miracles I just hope to enjoy reading good books with you get rich slowly If the content of this issue has inspired you Welcome to help, like and forward and share it with friends around you All your efforts are for More valuable knowledge votes I also believe that you have invested time in listening to this video Will turn into cognitive compound interest in the future Bring you the most stable returns thank you for seeing this We. .
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