Light positions, following the trend, stop loss, and take profit are all old sayings, but they can become the universal profit basis of any trading strategy. If you add rules to this basis and perfect it into a system, you can make stable profits; if you add heavy positions when there are few opportunities but it is worth operating, you can get greater profits.
Some people value K-line, some value time-sharing, and some value moving average or technical indicators, and use them as the core of trading. These are all manifestations of being caught up in details and only seeing the trees but not the forest, just like some people think that the United States is strong because it has aircraft carriers, but few people say that India is strong, even though India also has aircraft carriers.
For a country, whether it is an aircraft carrier, a satellite, a missile, or a supercomputer, each of them alone is not enough to become the core force for long-term victory. Even if they are combined together, they cannot become a solid and reliable force.
The same is true in trading. Whether it is K-line, time-sharing chart, moving average, or market language, none of them can be a magic weapon for long-term stable profits. Even if they are combined together, they still cannot guarantee long-term stable profits.
So what is a solid and reliable force? Rules and systems.
Rules are the core of trading concepts and the manufacturers of long-term advantages or disadvantages. They continuously output "potential", that is, probability, or possibility. In the futures market, most people are losing money steadily because they use a set of rules with stable disadvantages, that is, the possibility of their losses is stably more than 50%; a small number of people have unstable performance of sometimes winning and sometimes losing, because they can sometimes stick to the rules that are beneficial to them, but sometimes they can't; only a very small number of people can make stable profits, because they have understood the secrets of futures rules, established trading rules, strategies, and even complete trading systems that suit them, and most importantly, they can stick to it.
Therefore, some people in the market use daily K-line, weekly K-line or moving average to make stable profits through long-term operations, while others only look at the comparative changes in the buying and selling volumes on the market, completely disregarding K-line, moving average or technical indicators, and only make stable profits by earning price differences (day trading) that are as short as a few seconds or as long as one or two minutes.
These are two extreme examples. There are many other intraday swing trading methods, 5-minute momentum trading methods, daytime short-term trading methods, or swing trading methods that select a certain stage of the long-term. There are many people who use these methods, but only a few can make stable profits. These minority people, through a lot of trading practice, finally figured out that it is not the different trading time cycles that lead to their success or failure, but whether they have chosen a trading cycle that suits them and established advantageous rules for it. And most importantly, when they stick to these rules for a long time, they can make stable profits.
The truth is that simple.
Excuse me for being long-winded, but I will say a few more words. No method is perfect. Each method has its advantages and disadvantages. People who pursue perfect trading methods will eventually be disappointed. Traders who make stable profits know that they should stick to their advantages and avoid their disadvantages. This is the "rule of sticking to advantages". Only traders who understand this principle can embark on the road of stable profits.
To do this, there are at least three steps:
1. Study the advantages and disadvantages of this approach and list them in detail
2. For each of the advantages and disadvantages, formulate corresponding rules to maximize the strengths and avoid the weaknesses
3. Institutionalize it and stick to it
Taking long-term trading as an example, its advantages and disadvantages are listed as follows.
Advantages of long-term trading
1. Enjoy the advantages of compound interest growth, and the long-term benefits are very considerable
2. The amount of funds that can be carried is very large. A few million is easy, tens of millions are not a problem, and a few hundred million can also be done, but it is a little troublesome
3. The handling fee cost is low, which may account for less than 1% of the profit
4. The entry and exit prices are not strict. The price changes of a few or a dozen levels are not a problem. The price difference of dozens of levels is also acceptable. Even if it exceeds the expected price by hundreds of levels, you can still chase it.
5. Stop loss is generally controlled within 2%, and there are many opportunities for operation, not limited to one or two days
6. The requirements for stop-profit are similar to stop-loss, and there are many opportunities for operation
7. The requirement for winning rate is not high. 40% is a very good level, 30% is acceptable, and 20% is also tolerable. The winning rate has little impact
Disadvantages of long-term trading
1. You can only make money if you catch the big trend. You can’t make money without the trend, so trading opportunities are limited
2. The main components of profits may be just one or two key profits in a year, so the opportunity for key profits cannot be missed, let alone done the opposite. This requirement is very high.
3. The requirements for positions are extremely strict. If you rashly use a large position, you are very likely to suffer heavy losses.
4. During the period of market fluctuations, the psychology is repeatedly tested
5. When the stop loss level is reached, you must stop loss, otherwise you may make the wrong trend, resulting in loss of both opportunities and funds
6. Stop profit cannot rely on imagination. You can only exit the market after the trend is proven to have reversed. You must endure the loss of a considerable part of the floating profit.
OK, although it is not perfect, the general framework is there. Now we will formulate rules for each advantage and disadvantage:
Rule 1: Position Control
From disadvantages 3, 4, and 5, we can see that improper position control will lead to serious losses and may miss good opportunities. Because position control is the core of long-term trading. In order to avoid serious losses of funds, the following rules are specially formulated:
1. Never use heavy positions, and keep the maximum position within 20%
2. If the 2% stop loss line is reached, no matter what the situation is, stop loss and exit
3. When the market is trendless or volatile, use less than 5% of the funds to test the market trend
4. Funds are divided into 4 parts: trial warehouse, quasi-main warehouse, main warehouse, and spare warehouse. The trial warehouse is used to test the strength of the market; the quasi-main warehouse is used to attack the first target profit when it is proven to be right; the main warehouse is used to earn the second target profit when there is sufficient floating profit and the opportunity is good; the spare warehouse is generally not used.
Rule 2: Trade with the trend
From advantages 1, 2, 3, 4, 5, 6, 7, and disadvantages 1, 2, 6, we can see that only by catching the trend can we make money, so rule 2 should be a high-probability method that can catch the trend and a strategy that makes full use of the trend. How to do it? Formulate the following rules:
1. Do not hold a position most of the time; or hold a light position, with a position below 5%;
2. When a 5% trial position has a floating profit of more than 2%, or a loss of 2%, it means that the price has moved unilaterally by about 5%, which usually proves that there may be a trend in the market;
3. Only when there is a trend in the market and the potential risk-benefit ratio is above 3:1, add 5% to 10% of the position; only when the floating profit reaches 50% of the position funds, consider further adding positions;
4. Never speculate whether the market has started or ended, only determine it based on technical signals proven by facts, and enter and exit the market based on objective signals;
5. The timing of entry and exit is mainly based on the classic price patterns of long-term market, including the three most important patterns of "breakthrough, top or bottom, technical divergence"; supplemented by multi-period resonance. If the daily, weekly and monthly lines resonate, the possibility will greatly increase.
What advantages will these two rules and nine details bring?
1. Because there is no position when there is no opportunity, the principal does not bear any risk;
2. The 2% stop loss rule ensures that even if there are 7 consecutive losses, the principal can still be kept at around 87%. If it is done right once, the profit can be more than 10%. Two stops are enough to make up for the loss and have a small profit. This is the basis for invincibility.
3. When there is an opportunity, enter the market through trial positions to avoid losses that easily exceed the 2% stop loss line when making mistakes, thereby reducing the possibility of heavy losses;
4. By testing the ratio of floating profit and the classic price pattern, the reliability of catching the trend can be guaranteed to be more than 50%;
5. Only add positions when there is sufficient floating profit, which ensures that the principal is not damaged and can expand profits when profits are made;
6. Entry and exit are not based on subjective conjecture, which ensures the objectivity of the system, avoids false trends, and the inability to make major profits from trends.
In addition, there are some additional advantages:
7. Because the position is light, the mentality is more relaxed, which is good for the health of traders
8. The number of operations is very small and the transaction intensity is not high. There may be only a few transactions a year and the number of instructions is no more than a few dozen times, so the work is relatively easy.
Using these two rules and nine details, do you feel that your operation ideas are clearer than before? Whether you can do it depends on your own trial. You can test it in real trading or on a simulation platform. For subjective trading tests, it is best to use the Futures Simulation Software. For medium and long-term trading strategies, you can verify the market conditions for two or three years through your own real trading within an hour.
The difference between a trader with rules and a trader without rules is like the former driving a car while the latter riding a Spanish bull. This is an essential difference. As for whether the car is an Audi or an Alto, that is the next step.
These are just frameworks written in more than an hour. They are not a trading system yet, but they are just a starting point. Those who are interested in futures trading should be able to adapt them into rules for any trading method according to their needs.