Everyone's initial intention in the cryptocurrency space is the same, and there's no doubt about it. If you are just here to pass the time casually, then this place is not suitable for you. We come to the crypto space to gain more returns and provide a better life for our families. If technical skills are the premise for profit in this space, then the strict rules that need to be adhered to are key to long-term profitability.
If you want to treat trading cryptocurrencies as a second source of income, wish to have a share in the market, and are willing to invest time in growth and learning, then you shouldn't miss this article. Read it carefully; each point is the essence of the stock market. It can be said that whether in a bull market or bear market, these rules can help you!
[First Rule] Position Management.
This is of utmost importance! If you haven't realized the importance of position management, it's like saying you haven't left the beginner's village yet. You are still in a pure novice stage! If you're interested, you can take a look again. Of course, I just briefly explained it and provided what I think is the simplest and most effective method that is easy to learn and apply! You could say that position management determines how long you can survive in the crypto space in the future!
To put it simply, you should have already thought about where to set your stop-loss before opening a contract, right? (Don't tell me you haven't thought about where to place your stop-loss before opening a contract.) The size of your position depends on where you set your stop-loss. Think about whether you can psychologically bear the loss if your stop-loss is hit. If not, it means your position size is too large and needs to be reduced! If you can bear it psychologically, then your position size is just right! This is particularly easy to calculate; you don’t need to worry about what percentage your position is. That makes it difficult to calculate. It takes time, and often, a good entry point is a matter of a moment!
[Second Rule] Develop good trading habits, which includes several points:
A. Always set a stop-loss when opening a position; this is a rule as solid as iron in trading contracts. If you can't adhere to this, I advise you to just give your money to the manipulators and save yourself the trouble! Never have the mindset of taking a chance and holding onto a position. Even if you manage to recover nine out of ten times, you might feel pleased, thinking you can always recover the losses. But just once can wipe you out completely! This type of person actually makes up the majority!
B. Maintain a good mindset. When trading, don't get too emotional. If you incur a loss, don't rush to make it back immediately with frequent trades; that can be very dangerous. I've seen too many people lose a sum, get emotional, and then try to recover quickly, leading to total loss overnight. This goes back to what I mentioned earlier: when you open a position, you should already have considered where to set your stop-loss. If you've set a stop-loss, you know how much you'll lose beforehand, which is something you should plan before entering the trade. So if you hit your stop-loss, relax your mindset, maintain a good attitude, and look for better opportunities to fight again later.
C. Don't have preconceived notions. If you know a bit of technical analysis, that's best. If you don't, then you shouldn't have preconceived notions at all. I've encountered too many individuals like this. Preconceived notion: I believe it will drop; right now, the market is intentionally being manipulated to create a short squeeze, or the main force is holding it up. I believe it will rise; I won't believe it won't rise, even if it drops. I will hold my position because it has to rise with so many positive factors coming out. Right now, it’s intentionally dropping to liquidate long positions. This is a typical case of having preconceived notions. To put it bluntly, it’s being stubborn and particularly obstinate, refusing to admit defeat. The market changes rapidly; we can’t say, 'I think,' 'I feel,' 'I believe,' or 'I am convinced,' etc. When the market changes, we must adjust our thinking promptly! If you're wrong, admit it; stand tall when you take a hit!
[Third Rule] When trading contracts, you must pay attention to the risk-reward ratio!
Many people lack the concept of risk-reward ratio. If the first two points are key factors that ensure you can survive long in the crypto space, the risk-reward ratio determines whether you can make big money. Many people trade contracts blindly, without forming a proper system, just relying on gut feeling, and they don’t leave themselves an escape route, leading to erratic decisions.
Using myself as an example, my decision to trade depends on two things.
1. By predicting through technical analysis, if I am fairly confident in whether the market will rise or fall, then I will trade.
2. Even if technical analysis isn't very certain, for example, if I’m bullish but not too sure, but the current entry point looks good, predicting that the downside is limited while the upside potential is large, and the risk-reward ratio is high, then I can still trade.
These two aspects can satisfy one condition for trading; of course, if both conditions are met, that’s even better. Typically, I aim for a risk-reward ratio starting at 1:3 when trading. For example, recently I made a long position that, from a technical analysis perspective, wasn't especially certain but still reasonable, with about 70% confidence! However, I focused on the very high risk-reward ratio, so I went ahead with the trade, and when I exited, the risk-reward ratio reached 1:7. In other words, I made seven times my investment.
So later, if I use the same position size to trade other contracts, I can be wrong seven times in a row without losing my capital, greatly increasing my margin for error. Thus, my mindset when trading later will be better; with a better mindset, my success rate in trading will also improve. If, among those seven trades, I get just one right, I will make a profit; if two are right, I will earn even more. Moreover, my market analysis accuracy is still very high.
Therefore, the risk-reward ratio must be taken seriously; it fundamentally determines whether you can make big money in the cryptocurrency space. Many people do the opposite: they take profits quickly and stubbornly hold onto losses. Even if you're right in direction, you won’t make any money. If you say you're not losing, then who is?