1️⃣ New traders are often greedier, while seasoned traders are often more fearful.
New traders entering the cryptocurrency market find everything fresh and have boundless aspirations for trading before they begin. More aggressive newcomers even view the market as a gold mine, believing that personal aspirations and financial freedom are easily achievable, with no risk awareness, only wanting to make quick and big profits. If they encounter beginner's luck and earn some money, they become overly ambitious. Ignorance breeds fearlessness, so I have always believed that losing money upon entering the market is a good thing, as risk awareness becomes ingrained in your bones. Conversely, if one enters the market and makes a profit, it is not a blessing from above; it may open a door to greed, leading to an endless abyss behind it.
In contrast, seasoned traders have suffered from the market's harsh realities, experimented with various strategies, and experienced failures. Those experiences of losses make seasoned traders cautious, often correctly predicting market trends but poorly executing orders.
If you are a new trader, do not be blindly optimistic; trading is not that simple. Do not pursue huge profits blindly; learn more, observe more, and trade less. If you are a seasoned trader, do not wear a worried expression, nor should you underestimate yourself; trading is not as complicated or difficult as it seems. Review, summarize, and correct frequently, and you will achieve a new understanding and fresh start.
2️⃣ When in an empty position and when in a position, they are two completely different mental worlds.
Many traders can be very calm and objective before entering the market, analyzing the market conditions and making trading plans, but once they enter the market, they start to become anxious and uncertain, and execution issues arise. When orders are profitable, they fear profit retracement, and their original direction becomes shaky; when orders are losing, they fear stop-loss, resulting in an unreasonable adherence to the wrong direction. When in an empty position and in a position, they are like two different people.
We must understand that the psychological pressure when in an empty position versus when in a position is completely different; what we think in an empty position may not be achievable when in a position. Therefore, we must lower our expectations and anticipate our psychological endurance, reduce our position size, and simplify the execution of the trading system—for example, making the success rate and profit-loss ratio more reasonable, and making the rules for market judgment clearer and simpler. These are all very helpful optimizations. Thus, we often say that the greatest truths are the simplest, for the sake of maintaining a stable mindset.
3️⃣ Short-term traders incur the most losses.
Let's look at the data: Someone once analyzed that 85.2% of profits among profitable clients come from 5 trades or fewer. Excluding these 5 trades, most of these clients are actually losing. The characteristics of these 5 trades are: the holding period is generally around 2 months and typically occurs in a one-sided market. Clients who trade more than 10 times daily have an average return of -79.2% over 3 years. Clients who trade more than 5 times daily have an average return of -55%. Clients who trade more than once daily have an average return of -31.5%. Clients who trade more than 0.3 times daily have an average return of 12%. Clients who trade more than 0.1 times daily have an average return of 59%. Clients who trade more than 0.05 times daily have an average return of 234%.
From a trading results perspective, the more frequently one engages in short-term trading, the more one tends to incur losses. From a practical standpoint, it is not difficult to understand that in short-term trading, market fluctuations have a greater psychological impact on traders. Many inexperienced traders become impulsive, frequently entering and exiting without rules, leading to significant losses. By extending the trading cycle and maintaining distance from the market, traders can remain calmer, which is conducive to profit.
4️⃣ Many people can achieve short-term profits.
Many people have had similar experiences; when they first start trading or during simulated trading, they often achieve consistent profits, leading them to believe they have found a profitable method or even think of themselves as trading geniuses with special talents. In fact, this is the greatest illusion in trading. Even if the failure rate of something is 99%, everyone believes they could be the successful 1%, ignoring the 99% risk they must bear.
Many people also like to share their trade results; after one or two or three months, they find they are consistently profitable, which makes many eager to jump in. But in the end, many trading strategies cannot withstand long-term scrutiny. The so-called beginner's luck is simply because newcomers to trading do not have a deep understanding of trading techniques and follow a simple model. If they encounter a favorable market phase, they can make money. Moreover, since newcomers have not lost money and do not understand risk, they lack the fear mentality in trading, allowing them to trade freely. If they encounter favorable market conditions, they may even make a lot of money.
Therefore, making money in stages is very normal, but market trends will alternate, and once faced with an uncooperative market, it can lead to significant losses, even liquidation. Therefore, everyone must maintain a clear understanding; do not blindly be optimistic due to short-term profits, thinking you have conquered the market while ignoring the risks.
5️⃣ Trading is about expectations, and rules are important.
First, let's talk about expectations: back to the example of the Federal Reserve, U.S. CPI data, and the recent Federal Reserve interest rate cuts. These create expectations for trading. After forming expectations, traders trade according to certain rules. Expectations may not necessarily become reality; for example, whether the market will rise and by how much is unknown. After all, the market currently has strong expectations for the next Federal Reserve interest rate cut, and the market may begin trending before the Fed actually cuts rates.
Therefore, what we need to do is: after forming expectations about market trends, trade according to rules. Each time, based on bullish or bearish expectations, enter and exit according to consistent rules. Fundamentally, an interest rate hike by the Federal Reserve signifies bullish expectations; technically, a golden cross in moving averages also indicates bullish expectations; they are the same. Traders need to adhere to trading rules, earning more when trends align with expectations, and losing less when they do not, balancing the two for overall profit. Profit can be achieved by finding advantages in trading rules, probabilities, and profit-loss ratios.
6️⃣ Trading is simple, but human nature is very complex.
As mentioned above, trading is about generating expectations and executing rules. Placing orders and leaving profits and losses to market conditions is the essence of trading. There will inevitably be right and wrong, profit and loss; this reasoning is simple, but it contradicts human nature.
For example, the tendency to seek benefits and avoid harm is a significant weakness in human nature, while stop-loss and drawdown imply loss, which is counter to human instincts. Therefore, most people cannot accept stop-loss orders and cannot accept profit pullbacks. When you only want to gain and not lose, you fall into the trap of trading. In fact, most profitable trading strategies are quite simple, but human nature always desires perfectionism, wanting to buy at the lowest point, sell at the highest point, not wanting to make mistakes, and especially not wanting to miss opportunities.
Someone once asked me, according to the probability of flipping a coin, shouldn't the trading market be a 55-45 split in profits and losses? Why are so many people losing money? Setting aside human nature, the essence of trading is very clear and simple, but once human nature exists, it is like throwing oneself into a maze. When you are in the center of the maze, it is difficult to see the overall picture and even harder to find your way out. Therefore, the complexity of the trading market comes not from trading techniques, but from the challenge of countering human nature.
7️⃣ Do not be constrained by conventions; profit is the only goal.
Recently, a fan left me a message saying: According to wave theory, the third wave is the longest, but often it isn't the case. Did I count wrong? Wave theory cannot be wrong, right? It turns out that wave theory is not necessarily correct. There are many instances where the first or fifth wave is longer than the third wave. Don't get trapped in the mindset of 'is this knowledge correct' after learning something.
What we need to prove is not whether what we've learned is correct, orthodox, or mainstream, but whether our trading methods can achieve profitability. Just like chasing trends or counter-trend trading, some may find these methods unorthodox, not the right path. However, in my view, whether a cat is black or white, as long as it catches mice, it’s a good cat. I see no inherent superiority or inferiority among methods, only the ability to achieve profitability. Counting waves is for achieving profits, and the method of counting waves need not be confined to the perspective of wave theory.
So I often emphasize that when learning something, it is essential to take the essence and discard the dross. Wave theory has its merits; its flaw lies in how to quantify the counting of waves, standardizing it for easier execution. Therefore, we should focus on solving this problem without getting caught up in whether its details are correct. When your focus changes, your perspective will also change. Break free from constraints and establish profitability as your only starting point, building your own cognitive and technical system; this is the correct path in trading.
8️⃣ Mistakes can propagate; the best approach is to follow rules and avoid errors.
In practice, it is common for someone to incur significant losses due to mishandling a small order, resulting in a chain reaction. The inertia in trading means that when you hold long positions, you are more inclined to be bullish, and when you hold short positions, you are more inclined to be bearish because that is your 'hope,' not the truth. Even if the market has already changed direction and the technical standards are very clear, you still blindly adhere to your stance. A small stop-loss, due to blind adherence and unwillingness to stop-loss, or even doubling down against the trend, can gradually accumulate into significant losses.
In practice, we must absolutely not have a sense of complacency; we must strictly adhere to trading rules and avoid any small mistakes. If an error occurs, we must stop-loss and conclude it promptly, preventing the situation from escalating. This is the correct approach.
9️⃣ If you don't want to miss anything, you'll miss everything.
Many of us have had experiences where the assets we trade are stagnant while other assets are on the rise, leading us to want to participate. When our trading system does not present opportunities, we still want to participate in other technical setups that are doing well. In short, we want to trade in every situation and not miss anything.
The cryptocurrency market is a place filled with temptations. Every day presents fluctuating market conditions, different assets, different cycles, and opportunities everywhere. Each opportunity represents potential wealth. Many people become blind and greedy in the face of these dazzling opportunities. There is indeed money everywhere in the market, but the money that can be taken into our hands is truly our own. We must thoroughly study our trading assets and techniques, avoid greed, avoid complexity, and not let ourselves become complacent. Because often behind greed is loss.
🔟 The market is unpredictable.
Finally, always remember 'Do not predict the market'; I have emphasized this more than 100 times. Many traders are constantly racking their brains studying mystical indicators or miraculous techniques that can precisely predict future market trends, hoping their methods will yield profits without losses. This is the starting point of erroneous understanding in trading. All patterns, candlesticks, and techniques are merely aids to help you cultivate your own trading system habits.
Theoretically: the future is unknown, and by definition, the unknown refers to things that cannot be known. The future market trends can never be predicted in advance.
A real example: During the 2008 subprime mortgage crisis in the U.S., the geniuses on Wall Street did not predict the significant decline. The Federal Reserve is the world's top central bank; how prestigious and powerful it is. I recommend everyone read the book (The Federal Reserve), which discusses how the Fed took actions such as raising and lowering interest rates to curb inflation and deflation. However, they made many mistakes in these operations; the Federal Reserve simply cannot predict what the financial market will become after interest rate hikes. They adjust policies step by step based on market performance after rate hikes, with each operation being a trial-and-error process. Even top financial institutions like Wall Street and the Federal Reserve, equipped with advanced technologies, methods, and highly intelligent staff, cannot predict market trends. How much less can ordinary people like us do? So, do not be superstitious about predictions; predictions will only make you lost in inertia, become lazy in thinking and effort, and lead to endless losses.
The above are the 10 truths about trading, hoping to inspire you.
Let's encourage each other.
