First principle: Try to protect our capital from loss as much as possible.
Errors in trend direction judgment, not entering according to signals, having stop losses that are too small or too large, and frequent trading that does not comply with entry rules can easily lead to trading failures, resulting in capital losses. Therefore, it is essential to protect capital as a priority before discussing profits.
Second principle: Hold on to profitable trades as much as possible and let profits run.
The operation of the trend is driven in a wave-like manner, and price fluctuations also need to breathe. Therefore, our stop loss does not need to be too tight; otherwise, it is easy to be scared off by pullbacks or triggered by stop losses, potentially missing out on trend opportunities.
'Strict entry and loose exit'
'The main difference lies in the settings of the stop losses. Next, let's discuss the stop loss techniques of 'strict entry and loose exit.'
First, we divide 'strict entry and loose exit' into two phases:
First phase: 'Strict entry' phase.
Second phase: 'Loose exit' phase.
The 'strict entry' phase is our entry phase, where stop loss settings require strictness. The 'loose exit' phase is our trend tracking and exit phase, where stop loss settings are relatively loose.
In these two phases, the four common stop loss settings are:
1. Signal stop loss
2. Structural stop loss
3. Three-line stop loss
4. Break-even stop loss
Signal stop loss, based on the candlestick pattern of the trading signal for stop loss.
Structural stop loss, using key nodes of price trend structure as stop loss points. These structural points are generally significant swing lows and swing highs in the trend.
Three-line stop loss, using the latest three closing candlesticks, choosing the lowest price among the three candlesticks as the long stop loss or the highest price as the short stop loss.
Since the trend structure is greater than the candlestick pattern, structural stop losses are more reliable than signal stop losses and three-line stop losses. Therefore, in general, it is advisable to choose structural stop losses as our main entry stop loss.
Break-even stop loss, which means moving the stop loss line to our opening entry point, so that the capital will not suffer losses. This method of stop loss
Generally, wait for the price to depart from our cost zone and have some profit space before selecting operational techniques.
Combining the characteristics of price trend operation, generally in the latest price movement, the candlestick pattern should precede the structural trend.
, so in the 'strict entry' phase, we generally use signal stop loss, three-line stop loss, and break-even stop loss. In the 'loose exit' phase, we mainly use structural point stop losses.
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So the question arises, how to distinguish whether the current price trend is in the 'strict entry' phase or the 'loose exit' phase?
The 'strict entry' phase mainly refers to our entry phase. Suppose we are going long. After opening a position, if the first newly formed structural low point has not been established,
That is, recognizing that we are still in the entry phase. Generally, when the price breaks through structural high points,
2, only then is the latest structural low point established. The interval from structural low point 1 to structural high point 2 belongs to the 'strict entry' phase, while the price breaking through structural high point 2 marks the 'loose exit' phase, indicating that structural high point 2 is a dividing line.
Next, we will deepen our understanding of the stop loss technique of 'strict entry and loose exit' through case reviews.
Bullish engulfing line
Signal close to enter long, the entry stop loss can be chosen below the signal's lowest point. Since structural low point 1 is close to the signal, we can also choose below structural low point 1 as the best entry stop loss.
When the price reaches K3,
, having already departed from our opening cost zone and having some profit space, we will consider moving the stop loss to the opening point or using the three-line stop loss to move the stop loss line to K1.
below the lowest price. Such a stop loss would be relatively aggressive and may easily trigger a stop loss, missing out on potential trends in the future. However, during the 'strict entry' phase, our goal is to ensure that our capital is not at risk.
Structural high point 2 is the dividing line between the 'strict entry' phase and the 'loose exit' phase. When the price breaks through structural high point 2 and establishes structural low point 1, this is the first newly formed structural low point after entry. The price enters the 'loose exit' phase, and we move the stop loss point to structural low point 3. Although the price fell back from structural high point 3 and exactly hit our stop loss point to exit, this is a normal price behavior.
, there is no need to be upset. The subsequent bullish engulfing line signal at structural low point 4 can allow for re-entry.
Bullish engulfing line
For long entries, the entry signal stop loss is close to structural point 1, so we use the relatively stable structural low point 1 as the entry stop loss.
When the price reaches K3, having already departed from our entry cost zone and having some profit space, at this point, move the stop loss to the opening point to break even or use the three-line stop loss method.
Move the stop loss below K1's lowest price, which can both protect the capital from loss and lock in some profit space.
It should be noted that when using the three-line stop loss method: if the latest three candlesticks are just narrow small bearish and bullish lines or stars,
Composition, there is no need to use these 3 candlesticks as stop losses, because they can easily trigger a stop loss. In an ideal set of 3 candlesticks, at least one should have a certain amplitude and trade in the opposite direction.
When structural high point 2 is broken, the first newly formed structural low point 3 after entry is established, and the price also enters the 'loose exit' phase we defined. At this point, simply move the stop loss below structural low point 3.
After moving the stop loss to structural low point 3, we not only preserve our capital but also lock in some profit space. The future price movement is merely a question of making more or less profit, so there is no need to follow the price movement closely for stop loss operations; just track and observe the price movement, judging whether the trend is reversing and whether it is necessary to reduce positions and take profits to exit.
In the 'loose exit' phase, reducing positions, taking profit, and exiting mainly focus on key structural points of trend reversal and strong reversal signals. During the loose exit phase, if we closely track structural low points to move stop losses,
, it is very easy to be stopped out because the higher the price goes or the more it oscillates, the more likely it is to break through.
The latest structural low point, which may lead to passive profit taking, so just keeping the stop loss at key structural lows that are not easily touched by prices is sufficient.
Returning to the gold case review, high point 4 did not break through high point 3, which may form a small M-top. The key level of the neckline at low point 4 is considered a secondary structural low point due to the small amplitude of the range. When the price breaks below low point 4, we can consider manually reducing positions or taking profits and exiting.
The price dropped to low point 5 but still did not touch our stop loss point at low point 3. So if we still have positions, we can continue to observe the price trend. High point 5 tested the resistance levels of high points 3 and 4 without breaking through, only creating a long shadow hammer line.
, it is a strong bearish reversal signal, at this point, we have a signal to exit and take profit from our long position.
In conclusion, the trading philosophy of 'strict entry and loose exit' has a relatively aggressive stop loss during the entry phase, which somewhat violates the normal price fluctuation rules, but the goal is to ensure the safety of the capital as much as possible. The shift in stop loss strategy during the exit phase is actually an operation that follows the normal price fluctuation rhythm, which can better capture trend opportunities.
In the cryptocurrency circle, ultimately, to survive and make money in this market, one must work hard to improve their own understanding; this is the only path.
When ordinary people are unaware of work, they must choose a profession; when unaware of society, they must choose a job; when unaware of family, they must choose a partner. In the absence of decision-making ability, we either make decisions ourselves or have our parents help us make decisions that affect our entire lives.
Parents are the starting point of a person's life. Life is a series of crossroads. If there is no noble person to guide us at key crossroads, one wrong step can lead to a series of mistakes.
Methods tell you, and I hope fans can also achieve financial freedom!!
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