In this world, everything can be arranged except your heart.
It doesn't matter who you lose in this world, except yourself. There is still a very long road ahead, and you have to walk it alone, relying on yourself and your own abilities to complete it.
The world will not give you back just because of your efforts, nor will it require others to treat you the same way just because of how you treat others. The most difficult thing for people living in this world is to maintain humility and peace, and this humility comes from inner sincerity and down-to-earth efforts.
You must believe that every person and event you encounter in your life has its value and significance. Some people teach you love, some events teach you growth. Even if they only leave a faint mark on your path, it is still a priceless treasure.
At least at some point in the past, you understood life, and you understood yourself. Let's think about it this way: effort with results is training, while effort without results is honing. Regardless, every encounter is an indispensable element in your life. Without a high win-rate contract trading system and a well-structured fund management plan, it is difficult to maintain a good mindset. Don't tell me that you currently have a good mindset while holding losing positions; I can only say that you have reached the highest realm of loss, tricking even yourself!
Mindset = Good fund management + Win rate > 30% trading system.
Among the winners in the cryptocurrency contract market, technical skills are secondary. The core of their trading is fund management, risk control, and trading strategies.
The reason they can make money lies in the fact that losers do not execute, do not strictly execute, or do not comprehensively implement fund management, risk control, and trading strategies. In a clash of arms, if technical analysis is a weapon, both sides are definitely evenly matched. However, if one side thinks that in a clash of strong opponents, the brave will win, recklessly charging into a hail of bullets with no regard for safety, they will certainly lose. They do not lose due to inferior equipment, but because they do not understand defense, do not comprehend combat strategy, and do not know how to utilize their forces. In our trading, this equates to risk control, trading strategies, and fund management.
If everyone strictly, scientifically, reasonably, and comprehensively executes and adheres to fund management, risk control, and trading strategies, then technical analysis can only play a role in determining the win-lose pattern. This means that winners only focus on fund management, risk control, and trading strategies, never nitpicking on technical analysis. Their requirements for technical analysis are very rough, which is sufficient for them to continue being winners for 10, 20 years. Because their vision is broad and their understanding is profound, they are incomparable and cannot be matched by traders who only focus on technical analysis. On the other hand, unsuccessful traders do not understand what forces influence trading. They get trapped in a pile of technical analysis books and cannot extricate themselves, like the Dow Theory that assesses trends, which can only confirm a trend after it has moved 30%, causing them to miss the opportunity to buy the bottom or sell the top.
The reason why losers and winners are on par in technical analysis also lies in the innate characteristics of technical analysis; regardless of how poor their skills are, they are merely slightly inferior, with winning probabilities of 40%-50%, not much difference. Ultimately, technical analysis boils down to a probability problem. Even if your skills are excellent, you may just have a slightly better edge, perhaps a 50%-60% chance of winning. For example, after a trend peaks and has moved about 30%, opinions on whether it is the top should not differ much. A portion of traders with differing views might say it is close to the top. From an overall trend perspective, opinions are generally similar, so the divergence can be ignored and will not lead to significant differences in win or loss. However, if you go all in or heavily invest at this point, problems arise: our traders can see the trend correctly in the larger direction, but if they enter heavily, they may get shaken out by minor fluctuations, resulting in losses. A slight daze can cause them to miss the trend entirely, which is very regrettable. Taking light positions is not scary because the losses are minimal. It allows you to follow the market closely without being shaken out or deterred, thus capturing the trend all the way down. By dynamically managing small positions and adjusting, significant profits can be made. The difference in technical proficiency between both sides is at most 30%. If you are overly confident in your skills and enter heavily without executing fund management, those with slightly inferior skills may be more self-effacing and test with light positions, thereby managing their funds.
Finally, you see that those who get shaken out and lose a lot of money are certainly those who entered heavily despite having high skills, while those with slightly lower skills will follow the trend down, even if their profits are not substantial. However, they have created a gap in funds compared to those who entered heavily. After several cycles and a year or two, the difference between them becomes as vast as that between a beggar and a wealthy person.
So how can we effectively manage funds? The trading system is a prerequisite for fund management, and we need to understand what fund management is. Transitioning from prediction to non-prediction is a hurdle that requires gradual understanding; once you grasp it, it will become clear. Until you have that insight, explaining face-to-face for ten days or half a month will not yield results. A mature trading system should include fund management, and fund management should not exist independently of the trading system. Remember, it should not exist, not that it cannot. Personally, I believe that to accurately understand the concepts of trading rules and fund management, we should start from risk control to achieve fund management. For the sake of convenience, I will use the moving average trading system and Bollinger Bands that we discussed earlier to explain. A golden crossover opens a long position, while a death crossover closes a long position and opens a short position.
Assuming the accuracy of the moving average trading system is 30% and the average win-loss ratio is 7:3, then, without considering trading fees and costs, the entire trading system cannot make a profit. How to understand this? For example, if you make 100 trades, 30 are profitable and 70 are losing trades. The profitable trades average a profit of 70,000 per trade, while the losing trades average a loss of 30,000 per trade. In the end, there is no profit. In reality, trading rules and systems based solely on indicators can mostly only achieve a break-even point.
Hypothetically, if we backtest long-term historical data and the system's maximum loss reaches 80%, we can say that this system not only does not make money, but the risk coefficient is also very high. A maximum drawdown of 80% is terrifying. How to understand this? Suppose you have one million in funds, and the maximum loss brings it down to just 200,000. Even if the final result is that you can earn back to one million, the risk coefficient during the process is extremely high, and it can be said to be out of control. Encountering a terrifying black swan could lead to a margin call at any moment. For a system that carries high risk and does not make much money, should it be entirely unusable?
The answer is: definitely not.
Let's first look at the risk. The maximum drawdown of the system is 80%. Can this risk be reduced?
Of course, it is possible. If we reduce the position size by half, the overall risk coefficient also decreases by half, and the maximum drawdown becomes 40%. What if we reduce the position size to 25%? Wouldn't the maximum drawdown also drop to 20%?
When we write the rule 'maximum position control within 10%' into our trading system, we obtain a low-risk system with a maximum drawdown of 10% that does not make money. Note that 'maximum position control within 10%' is a simple and straightforward rule in a fund management system, and this rule is mainly used for risk control.
The control of risk in the trading system stems from rational fund management.
Let’s digress a bit. Everyone knows that you should not trade with a full position, but most people do not understand why it is not advisable to do so. The answer lies here: fund management amplifies profits. For us, a low-risk trading system that does not make significant profits is actually of little use. Now let's focus on how to make this system achieve positive returns and make money.
In practice, not changing the opening and closing rules does not alter the 30% accuracy rate, and we cannot change the 7:3 win-loss ratio either. Though it may seem helpless, there are still ways. We can change the position sizes. If we can manage to keep the average position size of profitable trades at 10% and the average position size of losing trades at around 5%, wouldn't we achieve profitability?
Fund management plays a vital role in maximizing profits here. Excellent fund management can turn a system that initially does not profit into a profitable one, transforming a system that earns small profits into one that earns large profits.
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