Many people lose money in trading, but fundamentally it's not because they choose the wrong asset or timing, but because they haven't established the correct mental framework. Top traders all use a system — probabilistic thinking.

Simply put, don't focus on whether a single trade wins or loses. The key is the overall expected value for the entire year or quarter. As Gil Black said: "If your win rate can stay steady at 70%, and you make 50 trades a year, it's hard to lose money." This sounds a bit absolute, but the logic holds.

The core of probabilistic thinking lies in balancing two indicators: win rate and payout ratio. Win rate is how accurate your trading signals are, and payout ratio is the ratio of profit to loss. Combining these two properly is the foundation of making money.

Here's a better example for understanding. Suppose a strategy has a win rate of only 40%, which sounds low, but if you can achieve a risk-reward ratio of 3:1 (earning 3 units when profitable, losing only 1 unit when not), the expected value is still positive (0.4×3 - 0.6×1 = 0.6). Conversely, a high win rate strategy isn't necessarily profitable if the payout ratio is too low; over the long term, it can still result in losses.

How to improve win rate? The key is filtering out noise. Don't jump in just because of price fluctuations. Wait until strict conditions are met: the price forms a long shadow candlestick at a key support level, with volume also increasing. These two conditions alone can eliminate many false signals. After discovering a certain pricing pattern, Black spent two full years backtesting data to confirm its stability before risking real money. That’s professional discipline.

Optimizing payout ratio mainly depends on position sizing and stop-loss settings. When you see a potential profit zone, increase your position size. Use pyramid scaling to gradually expand gains. The crucial point is to avoid falling into the "average cost trap" — never add to a losing position, as that’s the Achilles' heel for most retail traders. Stick to the principle of "let profits run and cut losses quickly": let profits grow when you're winning, and exit immediately when losing.

Another very important point: be able to accept losses. Soros once said a classic quote: whether your judgment is right or wrong isn't as important as how you manage risk when you are right or wrong. If you don't have the right mindset, even the best strategy is useless.