About the foreign exchange trading equation

There are many theoretical studies on foreign exchange trading, and trading equations are one of them. Here is a brief introduction.

The elements of the foreign exchange trading equation.

1. Risk gambling rate: Starting from the risk gambling rate, the risk management strategy of investment theory can be constructed. The risk gambling rate is most affected by the maximum risk of a single transaction. Analyzing the performance of a transaction and investment theory. The return and risk structure of foreign exchange trading are the primary factors to consider. Different transaction types or trading opportunities require different risk gambling rates. That is, risk management strategies are different.

2. Win Rate: The effect of win rate on an investment theory may be no less than the average profit level of the investment theory. Because under the exponential growth of the number of transactions, an investment theory with a low single return but a very high win rate can also become a "magical investment theory". This fully reflects the principle of small profits but quick turnover.

Starting from the winning rate is a main starting point for constructing investment theory.

3. The average rate of return of successful foreign exchange transactions and the average rate of return of failed transactions.

From the trading equation, investment theory can also be constructed from this perspective. When the average rate of return of successful transactions is much higher than the average rate of return of failed transactions, even if the winning rate is less than 50%, it will be a good investment theory. This leads to the "28 principle" of trading, as well as some familiar trading principles such as stop-loss strategies and risk-reward ratios.

4. The number and path of foreign exchange transactions. In addition to the high winning rate, the number of transactions is decisive for the magical compound interest effect. Therefore, in this sense, short-term investment theory has greater advantages than medium-term and long-term investment theory. In addition, the essence of systematic trading methods is to characterize transactions from a statistical point of view, that is, a scientific point of view. Therefore, short-term investment theory is easier to meet the essence of "separating non-random fluctuations" due to the large number of samples.

The question of the path of the foreign exchange equation is an interesting one. If LTCM were to dissolve before Russia stopped paying interest on its bonds, myths about them would live on through the ages. Small probability events are a set of phenomena. As for why the set of strings appears in you, it can only be explained by "edge". Edge is the path in a random process.

The foreign exchange trading equation is a type of investment theory. Any investment theory should take into account the corresponding changes it should make in the process of practice, so as to be better used by investors to achieve the goal of profitability.