Why can professional traders make stable profits?

Not all professional traders can make a stable profit; in fact, there are also many who consistently lose money.

The professional traders who can truly make a stable profit have mostly seen through the truth of trading. They understand that trading is against human nature and act in opposition to it during their trades. This is the reason why professional traders can consistently profit.

Human weaknesses include:

1. Loss aversion.

Not setting stop losses, holding onto losing positions, buying more as losses increase in the hope of averaging down the cost, and longing for a market rebound to break even. While this strategy can sometimes succeed, a single market move can wipe you out.

2. Sunk cost fallacy.

For example, many people are reluctant to change their trading systems because they have invested too much time in a flawed system and are unwilling to give up or make changes easily.

3. Recency bias.

Many traders will alter their trading systems based on recent trading outcomes. If their system has been consistently losing recently, they may think there is a problem with the system, that the market has changed, or that their method has become ineffective, leading them to make changes to the system.

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4. Outcome bias.

This refers to the tendency to judge a decision based on its outcome rather than the quality of the decision-making process itself.People tend to favor outcomes over the underlying logic. They believe that profitable trades are correct and losing trades are wrong, without paying attention to the trading logic behind them. In fact, professional traders care more about the trading logic. If the trading logic is wrong, then even a profitable trade is wrong. If the trading logic is correct, then a single losing trade is also right.

4. Anchoring Effect.

For example, many people are reluctant to exit when profits retract, eventually leading to a stop-loss exit. This is because they have mentally anchored on the previous profit point as a reference. They didn't exit when they had so much profit, so they are even less likely to exit now with only a small profit, thus they hold on, which ultimately results in a loss.

5. Disposition Effect.

Because many people dislike uncertainty, they want to secure their profits as soon as they have a little, fearing that the profits in hand will fly away. Therefore, they always cash in their profits early to secure them, but when it comes to losses, they are reluctant to cut their losses, watching the losses grow step by step.

6. Bandwagon Effect and Herd Effect.

People tend to believe in something because many others do. They do not verify the truth of the matter themselves; they believe it simply because everyone is talking about it.

Thus, in trading, an individual's comprehension and insight are very important. Trading requires a quiet environment, free from interference, and one should simply trade according to their own plan.

7. The Law of Small Numbers.

(The original text ends abruptly, and the translation for the "Law of Small Numbers" is not provided as it was not included in the original text.)People tend to focus more on small samples and individual instances.

For example, if someone gets five trades right in a row, people might think that person is a master. However, what they don't realize is that this is often just a matter of luck.

Professional traders pay more attention to the law of large numbers rather than the law of small numbers. They are more concerned with long-term overall returns rather than short-term gains.

In fact, there is no magical secret to the trading masters who can make a stable profit; they have simply understood some of the weaknesses of human nature and actively go against these weaknesses in their trading. They have achieved what most people can't, which is why these 5% of people reap the wealth of 95% of others.

To achieve stable profits in trading, you also need to address the following issues:

1. Recognize that the market is uncertain and trends are unpredictable. Do not put too much effort into the entry phase; entry is just the beginning of a trial and error process. Only when you truly accept this point can you be said to have entered the door of speculative trading.

2. After entering, you must be able to "cut losses short and let profits run." When a position incurs a loss and reaches your stop-loss point, can you stop the loss in time each time? After making a profit, can you patiently hold on and let the profits run, even if the floating profit is given back or even turns into a loss?

3. You also need a good money management rule that allows you to trade with a light position and low risk, protecting your account and waiting for the market that belongs to you.

4. Do not over-optimize your trading system, recognizing that there is no perfect trading system in the market, only a system that best fits your own risk preferences.5. Consistent Execution. Once you have established a trading system, the next step is to implement your trading rules in one go. Only by adhering to consistent execution can you ensure that your trading system continues to deliver its advantages over the long term.

Many things, many truths, can be understood with time in trading, but society is a race to see who understands them first. Early understanding and late understanding lead to different destinies.

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