The importance of the profit and loss ratio in trading……

Whether you can make money in the long term depends on two things: your winning probability and the magnitude of each win or loss.

These two combined represent the true core of trading - expected value.

The calculation of expected value is quite simple:

"Win rate × Profit magnitude" minus "Loss probability × Loss magnitude".

Looking only at the win rate is incomplete, because the amount of wins and losses is the key to the final profit and loss.

Therefore, having a high win rate alone is meaningless.

Even if you win nine times and lose once, if that one loss is significant enough, all the previous small wins will be wiped out at once. #Trader #Market