After reading the previous article ""My understanding of the profit-loss ratio (1)", you should be able to have a basic understanding of the profit-loss ratio.

Last time we used the method of fixed stop loss as the basis, this time I will use the method of fixed stop profit as the basis for discussion.

When making a transaction at the market price, the general handling fee is about 0.1%. After accounting for slippage, the handling fee may be between 0.1% and 0.13%. We calculate this by substituting the same value as last time into 0.13%.

Next, let’s discuss the methods of taking profit and stop loss.

2. Set 2% above your preset reversal point as take profit.

2-1. Assume that the stop loss is set to 1% downward as the stop loss, then the profit and loss ratio at this time is 2/1.13, which is approximately 1.76.

2-1-1. When the winning rate is 50%, the expected return of each transaction is approximately 0.432%.

〔(1+(0.02×0.5))÷(1+(0.0113×0.5))−1〕

2-1-2. When the winning rate is less than 36%, the funds will slowly decrease. When the winning rate is 36%, the expected return is -0.003%.

〔(1+(0.02×0.36))÷(1+(0.0113×0.64))−1〕

2-2. Assuming that the stop loss is set upward by 0.5% as the stop loss, the profit-loss ratio at this time is 1.5/0.63, which is approximately 2.38.

2-2-1. When the winning rate is 50%, the expected return of each transaction is approximately 0.682%

〔 ((1+(0.02×0.50))÷(1+(0.0063×0.50)−1)〕

2-2-2. However, after reducing the stop loss, the winning rate of each transaction will also decrease relatively. Assuming that when the winning rate is reduced to 40%, the expected return of each transaction is approximately 0.42%.

〔((1+(0.02×0.40))÷(1+(0.0063×0.60)−1)〕

Here you will find that if the winning rate of stop loss 0.5% and stop loss 1% is reduced accordingly, the expected value will not increase.

Therefore, the determination of stop loss is as important as the profit and loss ratio.