Trading fundamentally revolves around those four major elements: technical analysis tools, trading strategies, capital management, and trading discipline.
1. Technical analysis tools: These tools include various chart patterns and technical indicators used to identify market trends and potential buy/sell signals. For example, moving averages can help identify trend directions, while the Relative Strength Index (RSI) is used to measure asset overbought or oversold conditions.
2. Trading strategy: Specific rules used to determine when to enter and exit the market. This can be based on technical analysis, fundamental analysis, or a combination of both. The trading method should include clear criteria for entering and exiting the market.
3. Capital management: Managing and protecting our capital, including determining the risk level for each trade, setting stop-loss and take-profit levels, and controlling position sizes.
4. Trading discipline: The ability to follow an established trading plan without being influenced by emotional fluctuations. Staying calm and adhering to rules is key to long-term success. If I were to score the four major elements of trading, I would give technical indicators and trading strategies each 15 points, capital management 15 points, while trading discipline would take 50 points. Why this allocation? Because even if you are proficient in technical indicators, trading strategies, and capital management, if you lack strict trading discipline, all plans cannot be effectively executed. Such a person may be an excellent analyst but not necessarily a successful trader. Trading discipline is a rule summarized from practical experience, helping traders stay calm and make rational decisions. Ignoring discipline can lead to serious losses. Therefore, the most important thing is to establish and adhere to good trading discipline.
Next, I will share the trading principles that I have adhered to. I will introduce them one by one from four aspects: comprehensive trading discipline, how to set stop-loss, position control, and the choice of trading time.
1. Comprehensive trading records
Comprehensive trading records refer to a series of basic principles and rules that traders need to follow throughout the trading process. The aim is to help traders control risks, manage emotions, and maintain consistency and systematic trading.
(1) Macro discipline:
1. After experiencing three consecutive losses, trading should be paused, reasons reflected upon, and after adjusting mindset, opportunities can be sought again.
2. Temporarily stop trading when accumulated profits exceed 50%.
3. Control the frequency of daily trading to avoid overtrading.
4. After a stop-loss, do not engage in reverse trading within three hours.
(2) Discipline before entering the market:
1. Avoid entering trades when the market is calm.
2. Only choose varieties with clear trends for trading.
3. Choose strong-performing varieties during trend-following trades and weak-performing varieties during counter-trend trades.
4. Each trade should clearly define entry price, stop-loss price, target price, and position control.
5. Avoid trading when the market is less volatile.
(3) Discipline after entering the market:
1. Once short-term profits reach the preset level, the stop-loss should be set close to the cost price.
2. Execute trading plans according to the same time frame.
3. When a counter-trend trade incurs a loss, it should not be converted into a medium-term trade, and ideally, it should not be held overnight.
(4) Position-building principles:
1. Trend-following position building: Enter cautiously, hold firmly, and follow the trend to adjust stop-loss.
2. Counter-trend position building: Control risks, enter and exit quickly, and avoid lingering.
(5) Closing principles:
1. Use various technical analysis tools to confirm trend-following closing signals.
2. When trading against the trend, a single reliable signal can serve as a basis for closing the position.
2. How to set stop-loss
The importance of stop-loss lies in its ability to help us limit losses, protect capital, maintain psychological balance, and improve trading discipline. By properly setting stop-losses, traders can exit in a timely manner when market changes are unfavorable, avoiding larger losses.
1. Fixed point stop-loss: Set a fixed number of points as a stop-loss standard, such as 30 points, which simplifies the decision-making process and standardizes stop-loss settings. For short-term trades, choose around 30 points, while for medium to long-term trades, a larger point value can be chosen, but it is not recommended to exceed 100 points.
2. Reference recent highs and lows: Set stop-loss based on recent highs or lows, utilizing the recent volatility range of the market.
3. Using technical indicators: Using technical analysis tools such as moving averages (MA) and trend lines to determine stop-loss positions. For example, set a stop-loss when the trend line is broken.
4. Setting based on candlestick patterns: Setting stop-losses based on specific patterns on the candlestick chart (such as head and shoulders, double tops, etc.), which often indicate trend reversals.
5. Integer price levels as references: Utilize market psychological price levels, such as integer thresholds (like 1000, 1500, etc.), as these positions often serve as support or resistance levels and can act as reference points for stop-loss.
3. Position control
In trading, in addition to selecting the right timing for entering and exiting the market, how to manage and adjust positions is equally crucial. Good position management not only helps you control risks but also optimizes returns, ensuring account stability amid market fluctuations.
1. Overall position control:
- Profits locked in positions do not count towards total position size.
- Trend-following trading can retain a medium position.
- Counter-trend trading should maintain a light position.
- Avoid heavy positions before a breakout in a sideways market.
2. Position-adding rules:
- Equal distribution or pyramid-style position increase.
- No position increase against the trend, but moderate position increase in favor of the trend.
4. Choosing trading times
Based on years of trading experience, I have found that there are specific time periods during which trading requires extra caution, and it is even better to avoid trading to reduce unnecessary risks.
1. Market uncertainty is higher on Fridays. As the last working day of the week, market participants typically adjust positions to cope with weekend uncertainties. This may lead to gaps when the market opens on Monday, with significant differences between the opening price and Friday's closing price. Additionally, investors' profit-taking behavior on Fridays can increase market volatility.
2. Market volatility before and after holidays or news releases is difficult to predict. During holidays, market participants decrease, trading volume drops, and liquidity weakens, causing prices to be easily affected by small orders. Before and after holidays, market sentiment is unstable, and uncertainty in investor behavior increases. News releases, especially around the announcement of important economic data, can cause severe fluctuations due to differences between market expectations and actual data, with rapid and strong market reactions affecting the execution of trading plans. During these periods, market changes are complex, and risks increase.
To avoid losses, we should carefully decide whether to trade based on our risk tolerance and strategy. If we decide to trade, we must strictly control risks, set proper stop-losses, and be prepared to adjust our strategy at any time.
