Many beginners playing contracts easily fall into a vicious cycle: making small profits and losing big money.
What does this mean? It means you might be right 10 times in a row, making just a little each time, but on the 11th time, you got greedy, or couldn’t bear to sell at a loss (holding a position), resulting in losing back all the profits from the previous 10 times, and even having to make up for the principal.
In fact, whether you can make money playing contracts does not depend on how many times you 'guess right', but on a simpler principle: whether the money you make can cover the money you lose.
The core of this principle is to control your win-loss ratio well. This concept sounds professional, but it’s actually very simple, and beginners can easily grasp it.
First, understand what the risk-reward ratio is?
That is: how much do you plan to lose to gamble for how much to earn?
For example, you set a rule: if you lose 1 yuan, you must earn at least 2 yuan to stop. This 1:2 is the most basic and suitable risk-reward ratio for beginners.
As long as you maintain this bottom line, you can avoid 80% of the traps in the market.
How to operate specifically? Remember these three steps:
First, set the 'rules of the game' before placing an order, don’t wait until after placing an order to think.
The most common mistake beginners make is watching the K-line after buying, with their emotions fluctuating up and down, deciding whether to sell based on feelings.
The correct approach is: before placing an order, set up the positions for 'stop-loss' and 'take-profit'.
· How to set? Strictly follow 1:2.
· For example, if you play with a capital of 3000 U, this trade you plan to lose at most 1%-2% (which is 30-60 U).
· Therefore, your take-profit target should be set at 2%-4% (which is 60-120 U).
· Once set, don't change it. Don't adjust the take-profit higher because you think 'it can go up', and don't delay the stop-loss thinking 'just wait a bit longer'.
Second, execute when you reach the position, don’t fall in love with the market.
· Trigger stop-loss (loss incurred): Without hesitation, sell immediately. Never hold onto a losing position, don’t fantasize that 'it will bounce back soon'. If this trade is a loss, it’s a loss, admit defeat and exit, waiting for the next opportunity.
· Trigger take-profit (profit gained): At this point, you can be a little flexible. You can sell half first and pocket the profit. For the remaining half, move the stop-loss price up to your cost price (the price at which you bought). This way, even if the remaining position drops, it won't hurt you (at most, you won't make a profit), but if it continues to rise, you can earn a little more. This is called 'letting profits fly for a while', while also protecting your principal.
Third, control your hands, don’t let the risk-reward ratio collapse.
Many beginners do the opposite: they make 10 yuan, fear it will drop back, and hurriedly run away; they lose 10 yuan, but stubbornly hold on, wanting to wait for it to break even, and end up losing 50 yuan or 100 yuan before they reluctantly cut their losses. This makes the risk-reward ratio 1:5 (gain 1 to lose 5), which is completely the wrong approach.
Remember one thing: it’s better not to make a profit than to suffer a big loss.
· If the market does not reach your take-profit point and turns down, as long as it does not drop below your cost price, you can wait and see.
· But once it drops below the cost price (even if it’s only a 0.5% loss), you must sell decisively. Don’t hold onto the luck of 'what if it can bounce back', because this tiny bit of luck is often the beginning of a larger loss.
Finally, you can be a little flexible, but the bottom line must not be broken.
1:2 is the rookie protection umbrella. Once you are proficient, you can fine-tune according to the situation:
· The market trend is very clear, it feels very likely to surge, and you can adjust the risk-reward ratio to 1:3 (lose 1 to gain 3).
· If the market is in a sideways fluctuation, neither going up nor down, you can lower the target a bit, for example 1:1.5, ensuring that not losing money is the top priority.
Beginners controlling the risk-reward ratio, the core is 'follow the rules, go against human nature'.
Even if you guess the rise and fall has only a 50% win rate (just like flipping a coin), as long as you can firmly maintain the 1:2 risk-reward ratio, then if you lose once (lose 1 yuan), earn twice (each earning 2 yuan), you still end up making a profit (1+2-1=2? Actually, it’s a profit of 2, loss of 1, net profit of 1).
Don’t be greedy, don’t hold onto losing positions, don’t get too excited. Beginners can also rely on this simple rule to stand firm in the contract market.
