In trading, to achieve the goal of "basically small profits and small losses, occasional big profits, but never big losses", it is necessary to find a balance between "short-term interests" and "long-term goals" and flexibly use position management strategies. Balance of trading strategies: The logic of holding positions of "small profits and small losses" and "occasionally big profits" is contradictory, and it is necessary to find a balance between short-term profit-taking and long-term positions. The importance of position management: Reasonable position management can help control risks, such as fixed stop loss, active reduction of positions and retention of bottom orders. The relationship between mentality and behavior: mentality and behavior influence each other, and successful trading requires effective management and control of mentality and behavior.

AI Summary

Generated by Toutiao Intelligent Technology

A friend asked me how to achieve the state of "basically making small profits and small losses, occasionally making big profits, but never making big losses". I was stunned by his question.

Let me translate what you mean. Isn't it about how to make stable profits?

After all, “small losses and small profits can protect the capital”, and occasionally you can even make a “big profit”, isn’t this a stable profit?

The question was asked in a very friendly way, but the translation was so subtle...

The question is simple, but many things are not so easy to do.

For example, the holding logic of "small profits and small losses" and "occasionally big profits" are completely different, or contradictory.

Generally speaking, small profits and small losses mean that you need to set a fixed stop profit, or exit the market based on subjective judgment.

The occasional big profit also emphasizes the meaning of "holding positions and letting go". Otherwise, it will be difficult to make big profits if you don't have a position and can't benefit from the trend.

This understanding is like a scale in front of you, with "short-term benefits" on one side and "long-term goals" on the other.

We always think that we can see the strength of the current trend during the trading session, and then hold if it is strong and run if it is weak.

However, in reality, there is a high probability that you will focus more on the gains and losses of the moment because of the difference between "short-term interests can always be perceived directly by you" and "long-term interests are an abstract assumption about the future".

The current trend fluctuations will have a greater impact on you

In other words, people who think they can "make a big profit occasionally" will gradually tend to "make a small loss and a small profit" when they actually do it, especially when you have the idea of ​​​​taking the money and running.

The market will always create certain illusions in the process of changes, making you think that "it has encountered obstacles, it has come to an end" to cater to the idea of ​​locking in profits.

At this point, it seems that short-term losses and small profits are possible, but three problems are ignored:

1. Short-term trading, the handling fees and spread costs are staggering in the long run, and may even be the main source of losses

2. People with poor discipline do short-term trading. When they encounter low volatility and volatile market conditions, they will suffer heavy losses if they cannot stop trading and cannot control the frequency of transactions.

3. The frequency is high, so in unfavorable market conditions, the possibility of consecutive losses is greatly increased, which tests your mentality

The unrealistic idea of ​​"small losses and small profits every day" is actually more like a manifestation of addiction to trading. You want to make some orders every day and find some excitement between the fluctuations in profits and losses.

It is difficult to make small profits and small losses, so later I had to invest in "occasional big profits", but trends are very scarce. It can be said that the time when the market shows a unilateral trend is less than 15% of the total time.

Most transactions are easy to make short-term profits, but if you look at the long term, you are likely to lose profits. Blame it on greed? Obviously it is inappropriate.

The low trend probability is an objective constraint, and there will be three problems:

1. The trial position is always stopped out, and the confidence gradually fades, and I want to give up

2. Waiting for the trend, but the entry point is not good, and you are beaten out

3. Failure to hold on for various reasons or crazy increase in positions and being pulled back to wipe out positions

Therefore, after most people give up "small profits and small losses", it is easy for them to end up with "small losses continuously and big profits are difficult to come by", and they cannot even tell whether they are making progress or regressing.

Having written this, I think some friends have realized the problem. Just as I often say, "The solution to many difficult problems in transactions is often not within the current link, but outside the link."

In the current stage, we can indeed limit the occurrence of big losses through strict stop-loss methods, but how can we flexibly switch between small profits and big profits?

Leaving the exit entirely to subjective judgment is obviously vague. This is equivalent to a trend trader who can take it when the trend is formed and run away in advance when the trend fails.

What does it mean? It means that we can see where the "inflection point" is when the single side is long or short. Can we do it? I think everyone has the answer in their hearts.

Of course, it is unlikely to find a solution from the perspective of market judgment, but we can fit this logic from the perspective of position management, such as:

1. First, determine a fixed stop-loss method. It cannot be wide or narrow. If you have to make subjective assessments when stopping the loss, it will undoubtedly add new uncontrollable factors to this link, thereby causing a series of other problems.

Therefore, when we emphasize discipline, it means that if you choose a fixed method, the risk cost will be high and there will be no ambiguity in execution. Once subjective factors are added, it will be out of control and may lead to a lot of unexpected problems.

Why did I increase the stop loss when I should have? I thought it was a fake move and chose to hold the order... The stop loss end is clear, which at least eliminates the possibility of a single large loss (except for the black swan liquidity risk)

So sometimes I think that if you can’t ensure that you are the one who wins money at the table, it’s best to prevent yourself from being the one who loses the most.

2. Actively reduce positions in the early stage of a one-way market

It is very easy to tell whether a trend is successful or not after the fact, which is to see whether the first and second sections can be connected. There are many trends that appear very strong when they break through, but this strength cannot be maintained for a few trading days. Once it reaches a heavy resistance position, it begins to weaken and turn back. Then the second section cannot be connected, and it’s over.

Therefore, it is not difficult to make floating profits by following the trend, and it is not difficult to take advantage of the short-term space by relying on such high-value signals. However, every time you want to keep the order and transition to the mid-term, you will find it particularly difficult, and various unexpected events will not go as you wish.

Therefore, I think it is necessary to actively reduce positions in the initial stage. The profit-taking part can first fill the hole of the previous stop-loss order, and pull the capital line back to the position of breaking even as much as possible. After that, the negative emotions brought about by the pressure of holding positions also have an outlet for venting, which has a certain psychological comfort effect, and it is convenient for subsequent holdings.

Moreover, there is a certain mapping relationship between mentality and behavior. Whether the mentality is optimistic or negative determines the behavioral tendency, and the choice of behavior affects the fluctuation of mentality.

Sometimes, when we say that a trend trader has a good mentality, it is better to say that he has completed a psychological construction by judging how many orders he keeps and the trend level planning after actively reducing his positions.

The results will definitely be different depending on whether you are intentional or unintentional, depending on how well you understand your own judgment. If you don't bet all your positions on the formation of the trend, it should not be difficult to make small profits or small losses.

3. Passive holding, relying on trend dividends to achieve "occasional big profits"

When it comes to the secret to following trends, everyone has a different opinion. Some look at fundamentals, some look at market sentiment subjectively, and some use technical analysis to count waves and so on.

But I think the secret to following the trend is very simple, that is, never close all positions before confirming a trend reversal. Even if you only have 0.01 lots left, it is also an "anchor point" that can lock your position in the trend.

Without a bottom order, it means that it is easy for us to predict the top and bottom due to some local changes during the trading session. Since you are already short, if you try to cover your original position, it will feel a bit like "I have to pick up something I have thrown away", which is a bit self-denying. In most cases, you are not willing to do this.

What would most people think? They would think that since they have made so much money, it doesn’t matter if they lose money on the trial position. This inflated mentality makes the motivation of bottom-picking and top-guessing reasonable.

Even if it is 0.01, we may passively benefit from the trend continuation. We can also maintain a trend-following position and will not be confused by certain declines and rebounds and misjudge them as reversals. We can also cover our positions after the subsequent pullback ends and continue to trade in the same direction.

In other words, what is important is not the floating profit, but to solidify one's position by setting some "anchor points".

Finally, let’s look at the ideal warehouse management logic: small losses - fixed stop loss, fixed cost; small profits - actively reduce positions in the first round and pull funds back to the initial state; occasional big profits - keep the bottom order and passively enjoy dividends when a trend emerges. High-level traders cover their positions.

We understand the changing logic of market trends and try to fit this logic from the perspective of position management. The more sophisticated the market changes you want to match, the more complex the position management logic will be, and it will not be easy to implement.

On the contrary, if we generalize market changes into one or two basic models, such as either volatility or trend, then the warehouse management logic will be very simple, stop loss will be cut, and floating profit will be released. However, this simplification also has a price.

Because he simplified it to only wanting the big trend, and all other intraday one-sided, swing trends... are attributed to the loss side, and the final winning rate is the probability of the big trend appearing, so we need to think deeply about these issues.

The above are some opinions, share them