You see so many people saying, “It’s important to trade using the small-loss, large-profit method.”
You may be thinking in your head, “Yes, that’s right,” or you may be in the process of trying it out.
But what do you think about it? Are you trading well with the small-loss, large-profit trading method?
This time, using the “dice game” that we have already explained to you, we will have you actually experience trading using the small-loss, large-profit method.
You will experience what is great and what is difficult about the small-loss, large-profit trading method. You will surely have an eye-opening experience and make new discoveries.
If you haven’t read the previous article on the dice game, please click on the link below.
- General advantages and disadvantages of small-loss, large-profit trading methods
- Practice big-profit and small-loss trading techniques in a dice game
- The results of big-profit and small-loss trading and the feeling during the trade. The gap between them
- And many people get into “no win trades”
- How to deal with big-profit and small-loss trading methods – Summary
General advantages and disadvantages of small-loss, large-profit trading methods
The first advantage of the big-profit and small-loss trading method is that the amount of profit you can take at one time is so large that your money will increase quickly and significantly.
Since one profit is much larger than one loss, you do not mind cutting your losses at one time, so you have less resistance to keep losing money.
As a result, boom! You will have a better chance to make a profit.
So, people often say, “With a big-profit and small-loss trading method, I don’t feel like I’ll lose in total.
Well, that is certainly true.
Then, what are the disadvantages of the big-profit and small-loss trading method?
There, you can see that what was an advantage becomes a disadvantage as it were.
In other words, unless you are very selective in your entries, the big-profit and small-loss trading method has a very low win rate.
Depending on the profit margin you are aiming for, you will often hear that the win rate is around 30%, or at best, it will not reach 50%.
In this case, you will have to repeat small losses over and over again, and in this situation, you may feel as if you are entering a trade only to lose.
Therefore, even if you know you can win in total, you will inevitably lose heart mentally, and there will be cases where you cannot continue big-profit and small-loss trading.
Do you think you understand the advantages and disadvantages of the big-profit and small-loss trading method?
After reading this far, you may be thinking, “That’s right. That’s why it’s so difficult to trade using the big-profit and small-loss method,” you may be thinking.
However, if you truly understand and practice big-profit and small-loss trading, you should be able to continue to do so without faltering, and you should be able to see results.
If you are not able to continue, then you do not understand the advantages and disadvantages of the big-profit and small-loss trading method, and you have not accepted its characteristics.
If you continue to trade and you are not seeing results, then…
- You are taking small, chicken-shit profits on positions with unrealized profits that should be large.
- When you should have entered a position, you were afraid to enter it because you didn’t want to lose any more money.
You may be experiencing the same problem.
This may be painful for you to hear.
However, by experiencing the big-profit and small-loss trading method in the safety of a dice game, you may be able to eliminate these causes and practice big-profit and small-loss trading more easily than ever before.
Practice big-profit and small-loss trading techniques in a dice game
Now, let’s try to put the big-profit and small-loss trading method into practice using dice.
Again, all you need to prepare is a single dice.
As I mentioned last time, it is very important to do this with your own hands, so I would like you to prepare the dice as much as possible.
If you cannot prepare a dice at hand, you can use the “Random Number Maker” link below.
Typical big-profit and small-loss trading rules
Rules
- Starting with 10 points.
- 2 points are awarded for “1, 2, 3”.
- If you get a “4, 5, or 6,” you lose 1 point.
- Repeat until the total number of points reaches 30.
If you get a winning roll (1, 2, 3), this time add +2 points.
Keep adding and subtracting points in your mind according to the roll of the dice until the number reaches 30.
Now, let’s roll the dice as fast as you can.
By the way, this is the same as a trade with a 50% win rate and a gain twice as large as the loss (1:2 risk reward ratio).
A little about “expected value” here
You have probably seen the term “expected value” before, haven’t you?
Of course, it’s okay if you understand it. However, if you know the term, but are not quite sure what it means, here is a simple explanation, so please skim through it.
In the trading world, “expected value” simply means how much profit (or loss) you will eventually make per trade if you repeat a trade while winning or losing. This is the “expected value” of a trade.
As an example, let’s assume that the result of five trades under a certain trading rule is as follows.
+20pips
+10 pips
-10 pips
-10 pips
+20 pips
Total +30 pips
Since +30 pips was achieved after 5 trades, the average profit is +6 pips per trade.
This “+6 pips profit per trade (whether you win or lose in each trade)” is called the “expected value.
In this example, the expected value per trade is +6 pips.
[Reference] Calculation Method of Expected Value
Expected value = (winning rate x average profit) – (losing rate x average loss)
Applying the above formula to this case…
(60% x (50 pips / 3 times)) – (40% x (20 pips / 2 times)) = 6 pips
The average loss is 6 pips.
In other words, by repeating these trades, although you may win or lose on each trade, you can assume a profit of “expected value x number of trades.
In short, if the expected value is a positive number, the more you do, the more profit you accumulate, and if it is a negative number, the more loss you incur.
Now, back to the big-profit and small-loss dice game
How did you feel when you rolled the dice with the typical big-profit and small-loss trading rules?
I was frustrated because the points didn’t seem to be increasing.
“I felt like I was losing a lot, and it was frustrating.
I think that’s the impression you will have.
But, when you have a winning streak, you get a lot of points and it feels good!
There must have been times when you lost 4 or 5 games in a row, but then won 2 or 3 games in a row, and your points recovered all at once.
However, there were still many consecutive losses, and I think the honest truth is that there were many occasions when I sighed.
Didn’t you find yourself in a situation where you repeatedly took one step forward and two steps back, like winning once, losing twice, winning once, losing three times, and so on?
This big-profit and small-loss rule, in fact, has great promise
By the way, the big-profit and small-loss rule that you just did is actually a lot more promising than the rule you did in the last article.
Review–“Previous Rule”
- 1,2,3,4: +1 point.
- If you get “5 or 6”, you get -1 point.
Calculating the expected value based on this rule yields an answer of approximately +0.33 points.
In other words, the expected value increases by 0.33 points for each roll of the dice, whether you win or lose.
The expected value of the big-profit and small-loss rule this time is +0.50 points.
In other words, the more you play the big-profit and small-loss rule, the faster you accumulate more profit than the previous rule.
It is about 1.5 times faster than the previous rule, right?
Did you feel a sense of unconvincing “I felt like my profits didn’t increase at all while I was playing ……”?
Or, you may have realized that you are accumulating a lot of profit at once in a situation where you keep winning.
The results of big-profit and small-loss trading and the feeling during the trade. The gap between them
By asking you to actually roll the dice, one characteristic of the big-profit and small-loss trading method has become apparent.
- There is a huge psychological gap between the total result obtained from big-profit and small-loss trading and the actual feeling during the trade.
The more you continue big-profit and small-loss trading, the more your profits increase rapidly, but it is painful and difficult to continue trading in the first place.
Moreover, since winning trades often appear in clusters over a period of time, you have to keep trading at a loss for a long period of time.
This is the reason why few traders are actually able to maintain big-profit and small-loss trading, even though it is said that this is the best trading method.
In order to help traders further realize the “big gap between trading results and the feeling of being in a trade,” we have prepared the following big-profit and small-loss rules.
This big-profit and small-loss trading is painful..! Profit at the end of the loss-making festival
Rule
- 8 points for a “1”.
- 1 point for “2, 3, 4, 5, 6”.
This big-profit and small-loss rule has a win rate of only 16.7%, but the expected value is +0.33 points, so of course the more you do it, the more profitable it is.
It may be a bit tedious to do +8 by rote, but I urge you to try this one with your hands.
What do you think? How do you feel about this amazing string of losses?
Not only 5 losses in a row, but 7 or 8 losses in a row can happen without a care in the world, and you may even experience a case where you end up with 0 points and go bankrupt.
On the other hand, you may have a 1 in a row and easily reach 30 points. In actual trading, however, it is not the end of the story.
You will continue to trade after that, and there is a possibility that you will encounter a series of losses, so it is an inevitable reality that you will eventually get caught up in this loss-cutting fest.
Imagine for a moment what would happen in a real trade.
And many people get into “no win trades”
Many traders, no matter how much they know they can win with big-profit and small-loss trading techniques, cannot continue to trade small-loss trades because the fear of consecutive losses overcomes them.
Therefore, they tend to take chicken profit or give up using the big-profit and small-loss trading method and move on to “small-profit and big-loss” trades that have a high winning rate.
However, if we are not careful, these trades can become unwinnable trades in total.
Let’s experiment with a specific dice game.
Chicken profit-taking is the road to infinite hell
Rule
- 2 points are awarded for “1, 2”.
- 1 point for “3, 4, 5, 6”.
By taking chicken profit-taking, there will be cases where a trade that would have resulted in a loss with the previous method will be settled at a profit, so we have taken this into account to set a high win rate.
The expected value of this rule is ±0 points, so no matter how much you try, you will not win.
It is a relief that you don’t lose, but no matter how many trades you repeat, you will not see any results, which is a very frightening situation.
Focus on win rate, steady, boom!
Rule
- 1,2,3,4,5: +1 point.
- If you get a “6”, you lose 10 points.
Needless to say, this is a rule with a negative expected value, and the more you do it, the more you lose and the more you will always lose in total.
Despite this, the number of winning trades is so high that it feels very easy to do.
However, this “easy-going feeling” is only an illusion, and you will be discouraged and disheartened by the big losses that will eventually come.
Incidentally, this “steady, boom!” type rule is based on the idea that “even if the rate moves against your expectations, there is a high probability that it will eventually come back.
Although such a tendency can certainly be seen in Forex, there will surely come a “situation where the rate moves unbearably against you” before too long.
When that happens, you will either get scared and cut your losses or be forced to take a loss cut by the FX company, resulting in a very large loss.
How to deal with big-profit and small-loss trading methods – Summary
The gap between the results of a big-profit and small-loss trading method and the feeling of being in a trade – once you realize this, you will be able to think about big-profit and small-loss trading from a different perspective.
It is also a good idea to be prepared to take a big hit and make a big profit while losing a small amount of money.
It is also a wise decision to accept that “that is why I could not make big-profit and small-loss trades,” and to keep the balance between profit and loss equal, or to avoid forcing a profit increase.
Incidentally, I am also the type of trader who does not forcefully increase profits, trading in a “small loss, small gain” style.
If you are more comfortable with the idea of steadily accumulating wins, I think it is also an excellent choice to “dare to use large stop-losses while increasing your win rate and accumulating small profits.
I hope this article has helped you to deepen your understanding of big-profit and small-loss trading.
This is how to understand the advantages and disadvantages of big-profit and small-loss trading methods using dice rolls.
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