Should you use “partial take-profit” or a “trailing stop”? 🧵

Many traders tend to focus only on entry points, but the performance of a strategy is ultimately determined by the exit.
🧵1/5 2/5
Should you take partial profits?
Should you use a trailing stop?
Should you do nothing until the initial SL and TP are hit?

These are common questions, and to give the conclusion first: “it depends on the strategy.”
For example, whether your strategy is a high-probability mean-reversion strategy or a pure trend-following strategy, or whether your trading timeframe is short or long — the answer varies greatly.

How the positive expectancy of a system with an edge is constructed differs from one strategy to another.
For instance, if your strategy has a win rate above 55% with a 1:1 risk-reward ratio, and the entries that produce this win rate come from mean-reversion setups or go against the trend of a higher timeframe, then fixing the SL and TP might be what allows this strategy to work.

On the other hand, if the strategy doesn’t have a high win rate but generates positive expectancy through a strong risk-reward ratio, then using a trailing stop instead of fixing the reward or incorporating partial take-profit may be what makes that strategy effective.

Whether you should let profits run or secure them quickly depends on what the strategy is designed to capture.
Conversely, it means that those exit methods are what define the strategy.

Change the exit method, and the strategy itself becomes something entirely different.

The misconception that "If it's just following rules, even a robot can do it"🧵

When I say, "Continuing to follow rules is essential for success," people occasionally appear who say, "In that case, even a robot can do it," but this is a complete mistake.
🧵1/5 2/5
What's important in trading is to keep repeating the same judgments and the same actions, collect a large sample size under the same conditions, and extract the edge by making the law of large numbers work.

This applies to all traders, and the law of large numbers is at work for all traders.
Conversely, the reason most traders cannot succeed is that the law of large numbers is working against them in the direction of their money disappearing.

Many traders follow the "rule" of "following emotions" and keep repeating the same actions.
No matter how different the chart is each time, the actions they repeat are the same.

For example, they don't cut losses because they don't want to make a loss, they take profits as soon as a small profit has accrued because they don't want to lose profits, they decide their position size "based on the amount of money I want to earn," and if they lose, they increase their position size to make it back.
These are actions that, if repeated, create a bias towards losses, and repeating such actions common among beginners is the same as repeatedly using a strategy with a very poor risk/reward.
If you continue to repeatedly act based on this consistent "rule" of "following emotions," the law of large numbers will work against this, and your capital will inevitably be depleted.

What I want to say here is that rules are not necessarily "something that can be quantified."
This is the fundamental error in the opinion that "If it's just following rules, even a robot can do it."

If you aim to be a trader with probabilistic thinking, at the very least, remember this 🧵

I have gathered only important short words.
Engrave these into your mind repeatedly.
🧵1/5 2/5
・No matter what strategy you use, you will inevitably have a losing streak.
・You will inevitably experience a drawdown.
・Trying to win back your losses will cost you more.
・A trade you place out of fear of missing out is worthless.
・As long as you follow your rules, winning or losing is not your responsibility.
・Your job is "only" to create a system with an edge (a systematized strategy) and then follow the rules.

To those who worry, "Things don't go according to the backtest" 🧵

It's natural that things don't go "according to the data" of a backtest.
What purpose you are using backtesting for is important.
🧵1/5 2/5
It is extremely important to practice thoroughly with backtesting beforehand.
This is not for data.
Because it is extremely important, I will say it again: "This is not for data."

No matter how much you know the data of your strategy or system, you cannot maintain consistency.
What you need is "the experience of actually using the Law of Large Numbers yourself" and "to cultivate an eye for discerning signals."

When it comes to backtesting, many people immediately associate it with "data," but backtesting is not something done only for data.
Of course, data is also important, but backtesting as "practice" is extremely important.

If you only think of backtesting in terms of data, you cannot achieve consistency.
This is because actual results do not turn out according to the backtest.
If you only think of backtesting as "something that will turn out according to the data," backtesting will indeed feel like a truly meaningless thing.

"It's better to end with a win than a loss" This way of thinking keeps you from success 🧵

If you're taking profits quickly because you don't want to miss out on unrealized gains, you cannot succeed unless you stop doing that.
🧵1/5 2/5
"It would be a waste to lose this profit."
"Since I can end this trade as a winning trade, it's better than losing, right?"

Thinking this way, many people break their rules and take profits too early, even though according to the rules they should still be holding positions with unrealized gains.

As long as you prioritize the outcome of the single trade in front of you over your rules, and continue to put your emotions and hopes first, you cannot succeed.
By following your emotions instead of your rules, you can no longer maintain the system's original risk-reward ratio or win rate, and your long-term performance will deteriorate.

Certainly, looking at just that single trade, you might think, "I'm glad I secured a small profit."
However, that mistaken experience of success becomes a powerful reason for you to "close the trade before profits grow" in your next trade as well.
You'll increasingly focus on short-term results, fear losing even small profits, and create a structure where your profits never grow.

No matter how excellent your strategy is, if you yourself end trades as soon as you have a little profit, that excellent strategy will not function at all, and it's the same as using a strategy with a very poor risk-reward ratio.

What is a trader's true "skill"?🧵

Just because you increased your funds tenfold in a month doesn't mean you have trading skill.
Large amounts of money can also be made by gambling with high risks, so a trader's skill cannot be measured by the "amount earned".
🧵1/5 2/5
Posts like "I increased my funds tenfold in a month!" are all over social media, and people might see them and praise it as "amazing talent", but rapidly increasing your funds tenfold or so in the short term is dangerous gambling.

These actions are merely increasing risk, are not sustainably repeatable, and cannot be called skill.

A trader's true skill is "consistency".
This is a clear skill.

Beginners or those who don't trade might think, "Just following rules is easy", but it's not that simple, and if you are an immature trader, you are "absolutely" unable to do it.
This is because you yourself are the one who prevents consistency.

"Consistency" is a skill that involves a perfect understanding of probability and a transformation of beliefs.

As long as you perceive value in the wins and losses right in front of you, maintaining consistency is extremely difficult.
This is because that mistaken belief will appeal to you through intense emotions, "making you reflect every time you lose" and telling you "you should change something".

You can easily be made to abandon consistency, but because you mistakenly feel, "I have improved" or "I have taken a step forward", you can never achieve consistency.

Why Your “Improvements” Lead to Capital Decline🧵

This thread explains how losing consistency causes your capital to decrease.
🧵1/5 2/5
An edge is drawn out through the law of large numbers, and what’s needed for that is consistency.

No strategy can escape the randomness of short-term results, and even great strategies cannot avoid losing streaks.
If a strategy has an edge, you must continue following the rules consistently even during losing streaks, build a large sample size, and eventually the profits will exceed the losses.

However, when people experience a series of losses or a period of poor performance, they start thinking “Maybe this strategy is no good,” “The market has changed,” or “I need to change something,” and they lose consistency.
Anyone can follow the rules easily while winning.
The time when people fail to follow the rules is always during losing streaks or drawdowns.

In other words, the moment you abandon or tweak your rules or strategy is “always when your capital is decreasing.”
And because of that, strategies are always abandoned before the edge can play out, which is why your capital keeps going down.

【To Beginners】Trading is not a world where beginners can easily succeed🧵

The trading industry: "Trading is easy to make money in"😄
The truth: You can make money easily, but you cannot succeed easily.
🧵1/5 2/5
Anyone can easily start trading, and you can easily make money.
This is because the outcome of a single trade is random, and there is a possibility of making a profit no matter how haphazard the trade is.
You will experience the illusion of having made money through your own skill.

This misleads many beginner traders.

You can make money easily, but you cannot succeed easily.
As long as you are an inexperienced trader, the money you easily made will be easily reclaimed by the market, and then some.

Even if you luckily make money today, even if you luckily make money for a month, it is difficult to luckily keep making money for several years.

You don't need to display monetary amounts🧵

In trading, nothing wastes more time and emotional energy than focusing on P&L.
🧵1/5 2/5
Many traders are interested in "how much profit am I making now?" or "how much loss am I carrying?", and are emotionally swayed by this information, but in trading, nothing wastes more time and emotional energy than focusing on P&L.

Worst of all, it drastically increases the risk of damaging your consistency.
I don't display them at all, and they aren't necessary for my trading.

The moment you start checking your P&L, you place tremendous value on immediate wins and losses, making it extremely difficult to maintain consistency.

The more you look at your P&L, the greater the risk you will act based on "what should I do about this amount right now?" rather than actions based on your rules.

"Building confidence by winning" is harmful in trading 🧵

Some people say, "Winning trades build confidence," but this mindset makes your trading unstable.
🧵1/5 2/5
Traders who build confidence from "wins" will easily lose confidence from "losses."

This is because they "place their self-worth on immediate outcomes."

As short-term results are random, the sequence of wins and losses is unpredictable.
If your confidence is tied to unpredictable outcomes, your confidence will continuously fluctuate, and your trading will lose consistency.

Why do almost everyone fail in trading?🧵

Almost everyone fails in trading.
What is the path to success that you should take to dodge that fate?
🧵1/8 2/8
Many people fail in trading.
"No matter what chart-reading method you use" "even if you have a system with an edge" people still fail.
There is an unavoidable law at work here.

The reason it is called a law is that the failure of many people is not accidental but inevitable, supported by an overwhelming population size; it is a pattern.
Paradoxically, stepping outside these patterns avoids failure and becomes the road that leads to success.

This thread explains those points.

If what you need to do is clear, there is no hesitation or regret🧵

Make a plan and wait patiently.
If you can't wait, it's because what you are waiting for is not clearly defined.
🧵1/5 2/5
Hesitating before a trade or regretting after a trade means your trading is not clear.

You constantly react to the results, and when the outcome is uncertain, you become anxious and start to hesitate.
In such a state, you can't properly wait for a trade, and it's impossible to maintain consistent actions over the long term.

Make a plan in advance that says “If this happens, then do this,” and only trade when that condition is actually met.
If it doesn’t happen, don’t trade.
It’s clear.

Don’t force yourself to trade and worry about “How should I think in order to trade?”

How many trades do you need to take to make a profit?🧵

It takes time for probabilities to converge.
All we can do is keep repeating actions with positive expectancy.
🧵1/6 2/6
Probability converges through a large sample size.

A win rate of 60% does not mean you'll win exactly 6 out of every 10 trades.
You might only win 2 out of 10 trades, or just 45 out of 100 trades.
But as you increase your trades to 1,000 or 2,000, the results will gradually converge toward 60%.

Many traders don't understand this, and they constantly judge their strategies based on small sample sizes, complaining "the strategy doesn't work" or "the market has changed," thus losing their consistency.
When you lose consistency, you abandon the strategy before it ever achieves its true performance.

Is it good behavior to immediately move your stop loss to breakeven, or cut your losses early before your original stop loss is hit?🧵

I'll answer this frequently asked question.
🧵1/5 2/5
Many traders immediately move their stop loss to breakeven as soon as they have a small unrealized profit, or rush to cut losses before their initially set stop loss point, driven by a desire to absolutely avoid losses.

If you have predefined rules for moving your stop loss and understand in advance that repeatedly taking these actions generates a positive expectancy, there is no problem.
However, if you're acting out of emotional reactions to immediate outcomes, this is not good.

Exit rules are extremely important.
Your win rate and risk-reward are determined by "where you cut losses" and "where you take profits."

If your strategy has a positive expectancy, you must follow those rules.
If you deviate from your rules, the original win rate and risk-reward will change, meaning you are effectively trading a different strategy.

Is it possible to tenfold your capital in a short time? The "harsh reality" shown by probability theory🧵

“Tenfold your capital in a short time!”──
It sounds like a dream, but when you examine the idea coolly through probability theory, it becomes clear that it is a challenge that borders on “almost impossible.”
We will verify why with concrete numbers.
🧵1/5 2/5
Trades that try to grow the account tenfold in a single shot by taking excessive risk are, by definition, gambling.
Therefore, rather than such one-off gambling trades, we will consider whether a tenfold increase in a short period is possible through trading that follows consistent rules and probability-based thinking.

For example, to “tenfold the capital in one month,” assuming 20 trades in that month, you would need to compound the capital by an average of 12.2% per trade (the 20th root of 10 ≒ 1.122).

Let us assume a relatively good strategy with a 60% win rate and a risk-reward ratio of 2:1 (profit 2 for loss 1).
To target 12.2% growth under these conditions, you must risk about 15.3% of the account on each trade.

With this strategy, just five consecutive losses would erase about 56.5% of the capital.
Furthermore, to pursue a tenfold increase over 20 trades with this risk setting (15.3%), you would need to win at least 13 times in theory.
However, with a 60% win rate, the expected number of wins is 12.
In other words, you must outperform the average result to reach the goal.

The statistical probability of achieving the goal under these conditions (60% win rate with at least 13 wins) is about 41.6%.
It may not be impossible, but it is clear that this is an extremely high-risk, high-volatility approach that is far from “stable.”

Let's overcome the human tendencies that obstruct the use of probability 🧵

What are the internal problems faced by traders attempting to utilize probability?
↓Thread 1/5 2/5
Our job as traders is to prepare the rules for a strategy that has an edge, and then consistently continue to adhere to those rules.

Simply put,
It means preparing a coin biased towards landing on heads, and only when that specific coin is tossed, continuing to call "heads" no matter what.

In other words, once you have prepared the coin biased towards heads, most of your work is already finished.
There are only two key points to watch out for: only "when that specific coin is tossed," and "always call heads."

Despite that, this is incredibly difficult.
This difficulty may be hard to comprehend unless you are a trader.

Stop endlessly learning from losses 🧵

The "game of probability" involves an attitude of accepting randomness, adopted by "those who have already completed their learning", in order to bring reproducibility to that learning.
🧵1/5 2/5
When I say, "Stop learning from losses," I invariably encounter the pushback, "Learning from losses is important."

This happens because you still perceive "loss = failure" and are trading for the sake of immediate wins and losses.

Traders employing probabilistic thinking do not trade for the sake of immediate wins and losses; rather, they act with consistency precisely because they know that profits will eventually outweigh losses in the aggregate sum of wins and losses that naturally arise from continuously repeating actions according to their rules.
In other words, it is precisely because they have "already determined the answer regarding those wins and losses" and fully accept them all that it becomes possible to consistently adhere to the rules.

Traders applying probabilistic thinking do not judge the quality of their trading based on immediate trade results; they always think in terms of a large sample size.
To them, a loss is not a failure; true failure means deviating from the rules and losing consistency.

In this sense, what truly needs to be learned from are the times you lack consistency yourself, or instances where inadequate preparation leads to a lack of confidence in your rules.

Do not confuse extracting an edge with refining a strategy 🧵

Many people lose consistency before extracting the edge.
Be clear whether you want to extract the edge or improve the strategy.
You cannot do both at the same time.
🧵1/5 2/5
To extract the edge from a system (strategy) with an edge, it is necessary to make the law of large numbers work, and it is necessary to consistently continue performing the same trades.

However, many traders stumble here.
When they fall into losing streaks or drawdowns, they think, "Has the system stopped functioning?" or "Has the market changed?", fall into anxiety, and start improving the system or abandon the system itself.

The trader themselves cannot maintain consistency before the law of large numbers begins to work, and the necessary sample size never accumulates.

How to maintain motivation until results appear? 🧵

Probability requires a large sample size to work.
Do not rely on motivation.
People who rely on feelings will definitely waver.
↓ Thread 1/5 2/5
A large sample size is necessary for probability to work, and consistent action is required of us traders.

I am often asked, "How can I maintain motivation until results appear?".
You must not rely on motivation.
It is important to "systematize" your actions.

If you rely on motivation or emotions, you will definitely waver.
The consistency required of you cannot be achieved if you use your emotions as energy.
You must continue to perform your daily habits as a matter of course, without the intervention of willpower.

50% Win Rate & Losing Streak Anxiety? 🧵

If losing streaks make you think "Is the system broken?", you "still don't understand" probability.
This thread explains the real meaning of a "50% win rate".
↓ Thread 1/5 2/5
Let's assume your strategy's win rate is 50%.
A 50% win rate does not mean "you can win 1 out of every 2 times".
It means "as a result of repeating it hundreds or thousands of times over the long term, the overall win rate converges to about 50%".

However, many people end up thinking:
- Lost 2 times in a row.
- Lost 5 times in a row.
- Therefore, this system is strange.

This is a confusion between short-term results and long-term statistics.
What is necessary in trading is the perspective of understanding "how many repetitions are needed for probability to function".

Many people misunderstand this point, calculating based on the results of a small sample size even when their win rate isn't 50% in the first place, thinking things like, "I won 5 out of 10 times, so the win rate is 50%".
Also, even when they actually know the win rate from a large sample size, they look at the results from a small sample size and think, "I only won 2 out of 10 times, so the win rate is 20%. Something is wrong."

3 Keys for Probabilistic Traders 🧵

No matter how much you claim "I think in terms of probability," if you are not presupposing these 3 things, you do not understand probability, and you do not have the stance of "utilizing" it.
↓ Thread 1/5 2/5
"You will have losing streaks no matter how excellent the strategy you use"

Do not try to search for a system that does not experience losing streaks or drawdowns.
Such a thing does not exist.
What is being tested during a losing streak is not the system, but "your own" discipline and consistency.

If you cannot overcome this problem, no matter what wonderfully performing system you have, you will keep tinkering with or abandoning the system every time you encounter an unavoidable losing streak, and you will never be able to extract the edge.

A system with an edge is one where profits remain through all the wins and losses that occur according to the rules, and losing streaks are also included as part of the system.

Trying to avoid losing streaks is the same as denying the system itself.