The five core principles of trading profit — (anti-fragility) reflections on reading, trading cryptocurrencies is a game filled with magic. However, this game cannot be played by stupid people, those who are too lazy to think, those with unhealthy minds, and adventurers seeking to get rich overnight. If these individuals rashly get involved, they will ultimately end up impoverished.


1️⃣ Uncertainty

"If you can predict the market one minute in advance, you can be as rich as a country."

If a trader can recognize the uncertainty of the market, they are already above the cognitive level of about 70% of people in the market. Otherwise, they will fall into the trap of blindly believing various news, market experts' fundamental and technical analysis, mysterious techniques akin to astrology, and complicated formulas. Because they do not see that all forms of analysis predict future market conditions based on past information (data, events). Financial markets belong to complex systems, and no one can exhaust all information and possibilities, not even AI.


Human beings have a natural fear of uncertainty. Remember, we are the ones observing the candlestick charts, while the market makers are the ones creating them. Thus, financial analysts and market analysts emerged as anti-fragile professions.


The role of market analysts is to explain market conditions, tell you what happened, and why it happened. Therefore, they are the psychological massage therapists of this industry, alleviating your fear. Additionally, some analysts will offer trading suggestions, so if you incur a loss, you can conveniently shift the blame for the mistake onto them.


In the TV drama 'Tian Dao,' Ding Yuanying went to Wutai Mountain to seek an oracle and said: 'I only seek peace of mind.' Here, the master of Tian Dao and the master of market analysis reached an agreement.

In reality, trading requires one to face uncertainty directly, especially in the crypto world; only by recognizing uncertainty can one confront risks and returns, which serves as the entry threshold.


2️⃣ Convex Trading Rules

The term 'convexity' in the book may be one of the worst translations, both in terms of its curve and its meaning.


To achieve long-term profitability in the financial market, we must solve the problem of when to buy and sell. Trading rules concern the conditions under which to enter and exit the market or price.


The core logic for establishing trading rules is the convexity effect, which means: profits have no upper limit while risks must have a lower limit. In layman's terms: cut losses and let profits run.


For example, a simple, genuine trading rule might be: buy if the price breaks above the 50-day high, sell if it falls below the 20-day low.

It can also be tailored to personal preferences to be more complex, for example: buy if the price breaks above the 50-day high while the MACD indicator is above the 0 line, and the price is above the 50-day moving average, etc.


However, one thing is certain: the more complex the trading rules, the more fragile they become. It’s like if a nuclear war breaks out, most life forms will go extinct, yet bacteria, algae, or beetles may survive. In the real world, small and beautiful things tend to be anti-fragile, and the same applies to the trading world.


3️⃣ Fund Management

Having a trading rule set is far from enough. In the unpredictable financial market, the most important thing is survival.


To ensure account safety, a robust fund management plan is necessary.

First is to apply the barbell principle. A barbell is a weightlifting tool with heavy weights at both ends and nothing in the middle. The barbell principle means separating extreme situations.


For example, in the crypto world: 90% of funds are held in cash, taking no risks, while 10% of funds take extremely high risks. In this case, although both approaches are extreme, your maximum loss is controllable, which is only 10%, but your potential gains are limitless. The barbell principle mitigates the issue of black swan event risks that are immeasurable and easily subject to erroneous estimates. It can limit the maximum loss.


Thus, the advice for our trading is: never go all-in. Ensure there is enough redundant capital in your positions. The best trades are always defensive, not aggressive. In a market where black swans frequently fly, preventing low-probability events and ensuring survival is the top priority.


4️⃣ Repeated Trial and Error

Once we have a trading system and fund management, the remaining step is action.

Most trading systems will not have a high win rate, typically around 30-40%. This means that on average, you will incur losses in 6 to 7 out of every 10 trades.


But don't forget what Taleb said: the average is the most unreliable word. In extreme cases, you could experience more than ten consecutive losses. Just like flipping a coin, there is always a probability of flipping heads twenty times in a row.


Due to low win rates, the overall probability relies on the risk-reward ratio, so trading is essentially about trial and error on a large scale while ensuring survival, repeating correct actions until market conditions arrive.


5️⃣ Good luck is essential

If the above four points are achieved, then to profit from trading, a very important factor is: good luck.


We see trading masters like Buffett, Charlie Munger, and Taleb, and we need to avoid falling into the trap of survivor bias. The financial market requires more good fortune than other fields, especially needing favorable market conditions. When a black swan event occurs, you should 'just happen' to be on the scene and must take the right actions.


So, in the crypto world, we need to build a trading system, continuously do the right things, and wait for our luck to come. In other words, after doing our part: do your best and leave the rest to fate.


I am not an expert in trading; I just enjoy reading books about trading in my spare time and validating various trading theories with real money. Therefore, after encountering various pitfalls, I summarize and share insights to save everyone from trial and error costs.


Let’s encourage each other and wish for successful trading!