Before I buy an asset, I consider the following eight questions. This is not only the framework of my investment strategy but also a process of self-reflection. Each question represents a deep understanding of the market and strict adherence to investment principles. Here are my in-depth thoughts, hoping to inspire you.
1. Is there a market maker?
The existence of '庄' (market makers) not only affects price fluctuations in the market but is also a crucial factor in determining whether you can survive in investments. The so-called '庄' in the market is simply those with abundant capital, able to attract retail investors by controlling fluctuations to complete capital operations. In this process, market makers are not 'all-powerful' but achieve precise price manipulation by utilizing market sentiment and technical control.
For retail investors like us, identifying whether a '庄' exists primarily depends on whether the capital is concentrated. Concentrated capital does not necessarily mean it is a 'market maker,' but if you notice an asset's trading volume is abnormal and frequently exhibits so-called 'rallies' and 'crashes,' it is very likely that a market maker is operating. More importantly, it is crucial to understand the underlying capital motivation of this market maker—whether its goal is short-term profit or long-term control. If it is for short-term speculation, you should not follow. The existence of market makers is not inherently bad, but relying too much on short-term fluctuations for profit often leads to trouble.
2. How is the narrative?
Investment is not purely a numerical game; the 'narrative' behind it is often the core driving force behind your decision-making. The market's 'narrative' is the story behind the entire asset. Understanding the authenticity and depth of this story determines whether you can profit in long-term investments. A narrative that can continuously attract capital inflow must be substantiated. For example, if an asset merely relies on short-term industry hype without substantial innovation or long-term market demand support, its rise can only depend on market sentiment, and investors should be wary of this sentiment risk.
On the contrary, a deep narrative can often penetrate short-term fluctuations and bring long-term value. For example, narratives in emerging fields such as DeFi, AI, and Web3 can attract capital due to their potential, even in the face of market turbulence, if supported by solid technology and real demand. The core of the narrative is long-term trends; investors should not only focus on temporary hotspots but should consider the far-reaching development of the industry.
3. How is the risk-reward ratio?
Setting the risk-reward ratio may seem simple, but it is actually a very important strategy. Without a clear risk-reward ratio plan, investing becomes blind and emotional. I often say that the risk-reward ratio is not just a tool to hedge risks but also a key to managing mindset. Market fluctuations inevitably bring uncertainty; how to remain calm during this process depends on whether you have a reasonable risk-reward ratio set.
Generally speaking, the risk-reward ratio should reach at least 1:3. If your target return is 10%, then the stop-loss should be within 3%. Many people set their stop-loss too wide, thinking 'it might rebound,' but this mindset itself is a gamble against the market. In the face of the market, the gamble mentality often leads to greater losses.
Adjusting the risk-reward ratio needs to be handled flexibly in conjunction with market trends and risk preferences, but no matter how it is adjusted, the bottom line is: clarify risks to ensure profitability across multiple trades.
4. When is the appropriate position for building?
The timing of building positions directly determines whether you can profit in a market cycle. Every asset has a certain entry timing, which is often closely related to the overall market atmosphere, the price pattern of the asset, and its technical aspects. Buying an asset is not about blindly chasing the price increase, but rather entering at a certain 'important node' moment. This can be when a support level is technically formed or when market sentiment reverses.
The ideal entry point is the starting point of 'buy low and sell high.' If it is a trend-based investment, positions should be built during a clear pullback rather than chasing high prices just before a price explosion. Many investors like to chase high points, which is precisely the trap of the market. The ideal entry position is during market hesitation and price fluctuations, not when public sentiment is at its peak.
5. How should I build positions?
The choice of position-building strategy often determines whether your capital management is appropriate. For most investors, building positions in batches is the most reasonable strategy. Especially in times of significant market volatility and unclear trends, building positions in batches can avoid investing too much capital all at once, thereby reducing risk.
I usually build positions in batches at clear support levels or trend reversal signals, with each investment typically representing 10%-20% of the total capital. This way, if the market continues to pull back, I can continue to add positions at lower levels, averaging down costs; if the market confirms an upward trend, I can ensure participation in the upward trend.
6. What percentage of your overall position should this asset account for?
The term '土狗' (earth dog) refers to those small-cap, high-volatility, low-liquidity assets with great potential. My advice for these types of assets is to always maintain moderate position control. Although '土狗' may bring short-term explosive returns, their high risk also requires us to remain cautious.
In general, I do not invest more than 10%-15% of my capital into '土狗' assets. This ensures that even if these assets experience significant fluctuations, the overall capital remains stable. If there is clear market trend support, this ratio can be appropriately increased, but it must always adhere to the principles of risk management to avoid excessive concentration.
7. What is the target price, and how should I sell?
The key to selling lies in accurately grasping the target price and selling timing. For every asset, I set a clear target price in advance, which is usually based on a comprehensive result of technical and fundamental analysis. As the price approaches the target price, I consider gradually reducing my position to lock in profits.
However, the target price setting is not fixed. The market changes rapidly; I will flexibly adjust the target price and selling strategy based on the actual market situation. For example, if market sentiment is too hot and the asset's price deviates from its fundamentals, I will sell in advance; if the market remains healthy, the target price may be moderately adjusted upward.
8. If the judgment is wrong, how to stop loss?
The core of stop-loss is execution, not theory. Many investors often overlook or delay executing stop-loss points during actual operations, leading to expanded losses. I believe that stop-loss is not only a correction of wrong judgments but also an important means to avoid emotional decision-making.
Before each trade, I set a stop-loss point and strictly enforce it. The setting of the stop-loss point is usually based on market volatility and my risk tolerance. If the market moves against me and hits the stop-loss point, I will decisively exit to avoid further losses.
Tap your little hand for wealth and pay attention ❤️, I wish everyone can earn what they want in this bull market.