Understand the profit-loss ratio. To put it bluntly, it is the ratio of making money to losing money. It determines whether a transaction is cost-effective.
For example, you plan to buy at 6,000 yuan and set a stop loss at 5,900 yuan. In this way, if the market is not right, you will lose 100 units. In order to make this transaction cost-effective, you must expect to make at least 200 units, that is, the price must rise to 6,200 yuan. In this way, your profit-loss ratio is 2:1, but if you want to be really cost-effective, it is best to have a profit-loss ratio of 3:1, that is, you make three times more than you lose. Such a transaction is worth a try. It is better not to touch transactions below this ratio. Unless you are a trading genius, it is difficult to make money by luck.
In fact, this idea of probability and profit-loss ratio is not only useful in trading, but also reflected everywhere in life. For example, if you chase a girl, if she only responds to you after you say three sentences, it is obvious that she is not very interested in you. At this time, if you still pester her, you can only become a spare tire.
For example, some illegal activities, such as drug trafficking, although the profits are high, the risks are also high. If you are not careful, you may lose your life. The profit-loss ratio is actually very low. On the contrary, for illegal fundraising, although the money is defrauded, the sentence is relatively light. From a certain perspective, the profit-loss ratio is higher. Of course, this is not to encourage everyone to do illegal things, but just use this example to illustrate the concept of profit-loss ratio.
So, whether in investment or life, we must learn to calculate this account and see whether our efforts and returns are worthwhile, so that we can make a wiser choice.
