Friends often ask how to control greed in trading and how to avoid always taking orders too far and causing profit taking.
But after a detailed discussion, I found that they all had one thing in common, that is, they were not clear about the holding period and profit target for the order they were going to make, or they did not think about the holding and exit links at all when opening the position.
It means that you make an order on impulse, and when you see that there is a floating profit, your mind starts to wander. Combined with the "fundamental news" seen on some financial websites, or the kinetic performance of small-scale trends, you unconsciously overestimate the possibility of a reversal, and feel that you may be able to hit the "big top/bottom" by taking a gamble.
But in reality, what is the nature of this impromptu idea?
For example, a friend of mine saw a false breakout after gold hit a new high in a 5-minute cycle, so he entered the market with a small loss and took a short position. It was easy to make a floating profit, but then he saw that the decline was relatively "smooth", and he couldn't help but start thinking that he had a chance to copy the "big top", and the price of this order was so good, once he turned short, his future was limitless...
As a result, once the small pullback ended, the market returned the principal and interest
This situation is very typical. Most people will feel that they are too greedy. They don't stop when they have made a profit and want more, but end up making things worse.
But in my opinion, this is not a mentality problem, but a human error, such as:
First, the entry level should match the target level.
Trends are low-probability events in the market. If every turn from long to short and vice versa happens so smoothly and directly at a certain point, what does it mean?
This means that there is a trend every day in the market, with long and short positions closely connected, and the trend is continuous like a surging river. Even a fool can make money here, but let's look at the historical trends and ask ourselves, is this true? No!
The process of trend reversal will mostly take the form of oscillation as the intermediate state, absorbing funds and changing hands to wear out the patience of retail investors. Within a month or two, there will be countless small-level graphics such as "false breakthroughs", "top and bottom divergences", and "big K engulfing" at the small level (intraday minutes and hours). Whoever can't control his hands will be cheated.
In the end, among these countless "signs of reversal", only one may be successful, or even none at all.
Objectively speaking, "small-scale changes are part of large-scale fluctuations" rather than "small-scale changes will become the beginning of a large-scale trend reversal". No matter what level you are at, the first thing to do is to understand this subordinate relationship.
The big level restricts the small level, rather than the small level leading the big level!
This means that if you make 10 attempts within a day, as long as you have a good sense of the market, you can make a floating profit in five or six of them. However, if you always add small-level signals to the expectation of the mid-line trend, then this floating profit will immediately become a waste.
After that, you have to be mentally prepared to fail 9 out of 10 times.
Therefore, the entry level must match the potential space of the current level. At the minute level, once you enter the market, you must lock in the intraday profit space, because this space can be achieved within the large-scale shock.
If you lock in hundreds or thousands of points of space at any time after entering the market, what is the essence? In essence, you are looking at the current level, the goal that cannot be accommodated by the trend space and cannot be achieved. In essence, people are in the shock and gamble on the market outside the shock.
Therefore, the essence of greed, to some extent, is the mismatch between the entry level and one's own expectations. If you enter the market at the minute level without considering the profit space within the day, enter the market at the hour level without considering the profit space of the band, and enter the market at the daily level without considering the space at the daily and weekly levels, then there will definitely be problems in trading, either running out early or closing late.
Because the expectations are wrong, the thoughts in your mind will naturally change. This is not a problem of mentality, but a cognitive problem of planning level goals from a technical perspective.
Second, there is plenty of time for us to consider our exit plan, but 95% of us just like to watch the market ineffectively.
What is ineffective watching? It means watching the price jump and letting time pass by, worrying for a while, and secretly rejoicing for a while. There is nothing in your mind except emotions, just a mirror reflecting the fluctuations.
In fact, even at a small level, there is at least a dozen minutes of holding time. With such ample time, don’t you understand the premise of whether to exit actively or passively? Don’t you understand whether your exit goal is rational or not? Not really, I’m afraid many people don’t even think about it.
If you pay a little attention during the trading session, you will understand that the smaller the level, the more suitable it is to actively exit the market, because it is to seize the small-level space and strive for the profit and loss ratio. Therefore, the best choice is to be in place and level.
What we are playing with is the high-certainty reaction of prices at certain node positions. This reaction can last for such a long time. We hold positions for this short period of time. If the price explodes or falls as expected, we have to keep a close eye on the price and be prepared to exit when the reaction begins.
When the short-term reaction subsides, you need to immediately take profit and leave the market. You may catch the decline, and it will fall back to the short-term support formed by the previous high as expected and shake three times. Once you see that the support has this kind of "resilience", the reaction can't be maintained, so you have to run away immediately.
From this perspective, does short-term trading rely on predicting the peaks and bottoms of the stage to make a profit? No, it is a kind of over-inflation or over-falling correction reaction of the price. Once this reaction subsides, you have to leave the market immediately.
Without this knowledge and psychological preparation, I thought of finding a way to see the changes in the ultra-short-term market and remind myself in time. This is a typical passive exit mentality, and it is impossible to achieve.
No matter how small the trend is, its reversal requires a combination of multiple K-lines and a reverse amplitude exceeding a certain limit to determine whether the long-short pattern has been destroyed. However, the problem is that there is only a small profit margin for short-term trading. If you are slow, a lot of profits will be lost. There is no option for passive exit at all.
As for looking at a single K pattern, it is better to just take profit as the winning rate is higher.
So this is another matching error. The smaller the level, the more suitable it is for active exit, because there is not such a large time window for you to hesitate. Just make money by reacting. Don't think about making a profit by selling at the highest or lowest price.
Passive exit is more suitable for large-scale traders, because this is the effectiveness and failure of the logic of following the trend. Why enter the market? The shock brewing period is over, the heavy resistance is broken, and the bullish or bearish trend pattern is established.
Why exit? The trend pattern is destroyed, and the strength of bulls and bears is exhausted. No one can predict where the final top and bottom of the market will be. We can only wait for it to form a certain degree of changes to see the future possibilities.
