When richard dennis, a great trading wizard, was training the "Ninja Turtle", he mainly recruited professional gamblers and bridge masters. The so-called professional gambler refers to people who can make a living by gambling, not those who are just addicted to gambling and can't extricate themselves. Whether a professional gambler or a bridge player, the same feature is that they can skillfully manage risks and benefits according to probability, and any step is based on the probability estimation of potential risks and benefits.

The biggest mistake in trading is that it is possible to grasp the market 1%, and that absolute causality exists. Because of the existence of chaotic system and the fundamental characteristics of fractal market, this complete causality does not simply exist. Every way and trading skill is imperfect, which is caused by people's limited rationality and cognitive deviation. It is precisely because of the inevitability of this defect that there is the possibility of endless improvement of trading skills.

foreign exchange trading is a kind of financial investment, which involves money. Money is the foundation of living. To quote Sun Tzu, "The place of life and death is the way of life and death." In fact, it is not an exaggeration to describe the transaction. It is precisely because of the relationship between life and death that every transaction should be treading on thin ice, and we should "know ourselves and ourselves, know the world and know the land" like a battle, make full estimates of various advantages and disadvantages, take into account various influencing factors, and then make a trading plan.

Because the situations involved in foreign exchange transactions are uncertain, the ideas of probability and statistics occupy the core in the transactions. In the habit of thinking, we must insist on running transactions with probability thinking and running evaluation with statistical thinking. This is true of bridge and chess, as well as gambling. Some people think that there is no science in gambling, which is actually a misunderstanding. All forms of gambling involve mathematical problems.

so how to cultivate probability and statistical thinking? First of all, in the design of trading system, we should use historical data to test the operation of the system and get various statistical characteristics, such as the maximum single loss and winning rate. Only by relying on a large number of statistical data, can we form an excellent trading system, then use the new market data to run an extrapolation test on the trading system that has been initially established, and conduct a targeted test on the system operation according to the statistical results, and then use the trading log to regularly revise and improve the system operation in formal trading. In addition, non-automated trading and multi-system comprehensive judgment involve a probability analysis, that is to say, when many contradictory factors are combined, trading decisions must be run on the basis of giving different factors different weights, which involves probability, potential risk and reward analysis.

In the process of improving trading methods and systems, there will be an extremely wrong concept called "over-optimization" or "optimization trap". Because there is room for improvement in the winning percentage of the trading system, we have the impulse to move towards 1% winning percentage. This impulse has two misunderstandings: First, winning percentage is not the decisive factor for continuous successful trading. Many successful traders have a winning percentage of less than 5%, but they can still accumulate profits at a considerable speed. On the contrary, many traders with high winning percentage have given up all their efforts because of one or two transactions. The key reason is that each transaction earns more and each transaction loses. Pursuing winning percentage is a novice's main impulse. In fact, there are many tentative actions in trading, and many of these actions are bound to be losses, but the profitable order will certainly bring rich profits after making up all the losses, just like the breakthroughs in futures trading. Although fake breakthroughs account for the majority, it is difficult for us to distinguish the true and false breakthroughs, so even if it is a fake breakthrough, we will probably go in without knowing it beforehand, because after all, compared with the losses. Second, the pursuit of winning rate will lead to over-optimization of the model, that is, too many restrictions will be added to try to include all the data. We often see trading software with a winning rate of over 9% in publicity. In fact, this is obviously a trick of over-optimization. The process is as follows: firstly, a trading system is established according to the data, and then the data that cannot be explained by the trading system are found out, and then new rules are added to the trading system to make these data be explained. As this process continues, almost all the data can be explained in the trading system, and every market segment can be grasped. This system performs perfectly on this data. This is over-optimization. Generally speaking, if the winning percentage exceeds 9%, there is an over-optimization trick.

defense is the most important premise of foreign exchange trading

Just like two famous sayings of Sun Wu quoted in the opening remarks, we can't overemphasize the first position of defense. In chess, even in all antagonistic competitions, defense is the only way to preserve one's strength so as to have a chance to beat one's opponent. Therefore, in the opening stage of chess and the trial stage of China Wushu, the purpose is to establish a safe situation that is beneficial to oneself first, and then to wait for an opportunity to attack. Those who only think about attacking will always fail. If you have played any kind of chess, you should have experienced this truth. Because foreign exchange trading is a game involving probability distribution, any unfavorable situation is likely to occur, that is, the market may move in both directions, but the probability of this situation is different. This probabilistic feature of foreign exchange trading and the uncertainty of actual risks make it impossible for us to ignore the worst when trading. Even if the probability of the worst is very small, if it does happen, it can't afford it. Without existence, nothing good can be expected.

Crowe, an investment guru, highly praised Sun Tzu's Art of War. Besides, he also mentioned Murphy's Law in his works. The general meaning of Murphy's Law is: "The worst thing is always the most likely to happen." In political strife and military struggle, we must prepare for the worst in order to make preparations in advance. Because the worst consequences are unbearable, that is, once the worst consequences are encountered, then we have no chance to enjoy the best situation later. In probability theory, small probability events can be regarded as the noise of the system and can be ignored. However, in foreign exchange transactions, such understanding is fatal. In foreign exchange trading, we follow the direction of high probability, but at the same time, we should keep complete measures to deal with the opposite direction of small probability. Many people can always get the rapid growth principal with a high winning rate, but they often fail in the opposite direction with a small probability. I witnessed many such forex operators with my own eyes, but they didn't reflect, but only blamed luck or poor market judgment, which led to the "over-optimization trap" mentioned earlier. In fact, their ability to analyze the probability decomposition of the market is quite good in my opinion. The only thing they lack is the defensive awareness to prevent the worst from happening.

In fact, the efficiency of learning defensive techniques is higher than that of learning offensive techniques, because defense is simpler and more consistent than offense. The attack involves the estimation of the direction of the market. It seems that the market can lead to the change of the account amount in two directions, either up or down, each accounting for 5%. The middle consolidation has no substantial impact on the account (there may be a loss in time, which can be ignored in the short term), but the direction analysis means are the most, so it is difficult to improve it greatly in the short term. Yang goes up and Yin goes down, and then there are four combinations of Yin and Yang, and the four combinations may evolve. The seemingly simple market analysis will encounter twists and turns in the actual operation, and then it is not the simple 5% problem that was originally thought. What Gann theory, Elliott wave theory, Gartley graphic analysis, traditional western graphic analysis, candle diagram analysis, OX diagram analysis, etc., can't be mastered quickly. However, defense mainly involves key positions, that is, natural positions, resistance positions and support positions. The mastery of key positions is more systematic and simpler than market analysis, and the system is relatively simple. The main natural locations are concentrated in the early highs and lows, the golden section position, and the early transaction intensive areas. Most of the resistance and support positions of foreign exchange are in these categories. Once we find a natural position, we can establish a defensive position well by combining fund management. Finding the natural position and judging the market direction, the former is faster to learn and master than the latter, and it is more objective and the standard is relatively unified. From the learning income curve, the learning of defensive skills is more effective than the learning of offensive skills. Moreover, it is extremely unlikely for a novice to improve his offensive skills quickly. Objectively speaking, direction judgment needs more long training, but it is very difficult for a novice to complete this training period without sufficient funds. If we can control the frequency and quantity of tuition in this stage of tuition payment, then we can live longer in this up-and-down 5% market and get more exercise time. Therefore, the rapid mastery of defensive techniques when beginners learn foreign exchange trading will provide ample time for offensive learning. In addition, defense is equally important in the harvest stage after the learning stage, because defense is the fruit of our ability to take offense and have the opportunity to enjoy victory.

whether attacking or defending, the most important thing is to have discipline to ensure that both are implemented. This is especially true in defense, because defense involves survival in the market. Once the defensive posture is neglected, the consequences are unbearable, while defense is easy to master in knowledge and inconsistent and contrary to common sense in execution. Therefore, the military-like sense of discipline should be followed.

attack is the best defense, which is a misunderstood sentence. This sentence is not to emphasize that attack is more important than defense, but only to say that attack is included in defense, which is the mother and the general concept, and attack is an important part of an active defense strategy.