It's a common belief among traders that continuous trading can often lead to liquidation, and the reasoning behind it is quite simple. Over time, with each trade, your capital can slowly erode, potentially bringing your balance down to zero.
Take this scenario as an example: You start with a principal of 10,000 yuan and maintain a 50% win rate. Let’s say you earn 1,000 yuan on a winning trade and lose 1,000 yuan on the next trade. If you factor in a 100-yuan handling fee per transaction, your final balance would look something like this:
1,000 (profit) - 100 (fee) - 1,000 (loss) - 100 (fee) = -200 yuan.
So, even if you're breaking even in terms of profits and losses, the transaction fees result in a net loss. Now, let’s consider profit and loss ratios. For instance, if your gain and loss ratio is 10%, with your original principal and the same fees, the outcome would be:
10,000 × 10% - (10,000 + 10,000 × 10%) × 10% - 100 - 100 = -300 yuan.
This equation doesn’t even take into account the spreads, which can further increase the losses. The theory behind continuous trading leading to liquidation is that, eventually, fees and small losses chip away at your capital until nothing is left.
In reality, most traders face a higher probability of losing because only the skilled traders with a clear edge in the market are able to consistently succeed. This underscores the critical need to increase your win rate and improve your trading strategy if you want to stay in the game long term. Feeling uncertain about trading and looking for guidance? Follow me and drop a "1" in the comments to kickstart your journey toward financial success!
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