In the previous blog post, I have written about the seventh stage of trading. This state is what all traders dream of achieving. The seventh stage is described as follows. Let’s recall “The seventh stage: As long as you can persist in learning and reflection, keep moving forward, have a complete system that suits you and are self-disciplined enough, you will definitely be able to make stable profits.
At this time, you begin to have your own understanding of the market and develop a set of philosophical theories. You understand that making money does not require complex tools or systems. Sometimes, the simpler and older things are more effective. Even a simple MA can help you make a profit.
You can calmly know when and where to enter the market, which product is more suitable at which level, how to set the exit point, and how to be patient in holding the medium and long term; at the same time, you can calmly accept losses, because losses are also part of trading. Although you will still make mistakes occasionally, most of the time you can be rational and self-disciplined. At this stage, you have a feeling of enjoying trading. You may have enjoyed losing money before, but now your mood is different. There is not much excitement, and it is also a kind of contented dullness. "Many times we think we have reached this stage, but each time our subsequent performance disappoints us. Going through such a cycle once or twice will damage our self-confidence to a great extent. If you are someone who persists to the end, you will definitely I will think hard about what went wrong. Isn’t this market said to have no secrets? Why is it so difficult to succeed?
First of all, I would like to talk about an old issue that must be persisted in to reach the seventh stage. I think it is never too much to discuss it. It is like the bottom cornerstone of a high-rise building. If you don’t do it well, even if you can build a skyscraper, it will collapse. Besides, how can you build a building at all? The problem is - stop loss.
Let's analyze stop loss from a deeper level. From a logical or more rational perspective, I think it can be divided into three categories. The first category is to stop loss according to the entry and exit principles of one's own rational thinking logic. Such stop loss is temporarily named "reasonable stop loss". If we dig deeper, reasonable stop loss can also be divided into two situations: stop loss within probability and mistaken stop loss. The following will explain these two situations. We all know that trading is a probabilistic event. The purpose of stop loss is to control risks just in case. No matter which transaction is based on a good point and theoretical basis, it may be stopped. Otherwise, we don't have to bother to learn it.
If you are long, and after a period of time after entering the market, the market falls like a waterfall with a large negative line that directly breaks through the stop loss and never looks back, then this is a stop loss within probability, and it is also a stop loss that we can or must accept, of course, the premise is that your system is a verified and available system.
There is another situation of stop loss, that is, after the market sweeps your stop loss, it will go in your direction. Everyone must have encountered this situation many times. Other people's entry point is exactly your stop loss point. If in this situation, it can be further divided into stop loss within probability, which is often called 2B form or multi-level resonance at this point, but this probability is definitely not the same concept as the probability of the previous situation. Stop loss within this probability can be avoided or reduced.
Another situation is that your entry position is unreasonable, because the market has errors, especially the longer the time period, the greater the error of the point we step on, and this error may not be enough to stop loss, so how to set a stop loss in different periods is also a science. The second type of stop loss is speculative loss. To explain, it means that you don’t have a certain prediction of the market in advance, but watch the market rise and fall, and you want to follow the order to enter the market. However, if you analyze it according to logical thinking, this stop loss is unacceptable, but you really want to follow the order to enter the market, so you can only set a speculative loss of 50 points. There is a suspicion of gambling here to a large extent.
A healthy trend always rises with a pullback and falls with a rebound. Even if you see a big positive line or a big negative line standing there, if you put it at a small level or a smaller level, generally it must not be a series of bare lines, there will always be upper and lower shadows of the K line, so since there is a pullback, it is a high probability event and a normal thing to put a stop loss of 30 to 50 points on your order.
Moreover, when you see the market is chasing ups and downs, there are so many smart traders, those big guys on Wall Street, they are much smarter than us. If we can make money by chasing orders casually, then who can they make money from? So there is a more likely thing that happens, that is, buying at the pressure level and selling at the support level, which is also the most headache for many traders. So many people are talking about following the trend, waiting for retracements, and waiting for confirmation for this reason. The third type is not setting a stop loss. There is no need to say too much about this situation. Everyone knows that the consequences are very serious. However, I still want to emphasize that if you really want to do a good job in trading, you should not set a stop loss once. As long as it happens once and you make money by chance, the pleasure of making money will be unconsciously stored in your mind to form a memory, and then you will make the second and third mistakes, until one time, you not only lose profits but also lose the principal because of not setting a stop loss. At this time, you may stop and reflect that you should not make the first mistake. This is human nature, and there is no way to avoid human nature.
Therefore, we must always remind ourselves not to cross the line of not stopping loss. Over time, we will form a habit and an impression: not stopping loss means losing all the money, which is a terrible thing. The above explanation on stop loss also has a certain guiding role in making orders. First of all, don’t make orders without stop loss, or even don’t make transactions. Try to give up the market of chasing ups and downs, because that is not a transaction within your system, and the probability of stop loss is very high. The only thing you can do is to stick to your own system, constantly optimize, understand, and extract your own trading philosophy from experience. This is a smooth road to trading. So if you want to reach the seventh stage, "reasonable stop loss" is an indispensable first step. After all, we can't make rules, we can only follow the market. Note that reasonable stop loss must be the most effective here. The second step is to have a market-proven system. The third step is to insist on the consistency of the system in trading.
The system here is a technical problem, and the other two are psychological factors. They cannot be gradually improved through learning. You must go through multiple cycles of practice, trial and error, thinking, and growth to gradually understand the truth. You will find that in front of the market, you are just a small part. Obeying the market is our first priority. So to what extent can we confidently say that we have entered the seventh stage of trading? Many times, we have made several consecutive profits, or have been profitable for a week or two, and we feel that we have advanced to the stage where we can make small profits. However, due to the lack of a thorough understanding of human nature, although greed, fear, and arrogance are on our lips every day, once emotional trading begins, it is difficult for ordinary people to control themselves in the initial stage, and it is normal to make mistakes.
We have gone back and forth countless times in the sixth stage, but we will find that the transition from the sixth stage to the seventh stage will not be smooth sailing. We still need to keep trying and understanding. In the process of trying, we have the experience of the sixth stage. I believe that the transition from the sixth stage to the seventh stage is painful, but not necessarily long. If you want to gain a foothold in the seventh stage, you must at least insist on making profits for half a year, and your capital curve must be smooth and upward, and the income is relatively stable. You can make mistakes, but the overall mentality is basically stable. There may be some market conditions that you are not sure about and the analysis is not thorough enough, but this should not affect your stable profits, but the amount of profit is still limited to a range. The more difficult things in the world are, the more sense of accomplishment you will have if you insist on doing them successfully, and the greater the harvest will also be. I think friends who like trading, love trading, and are keen on trading must persist and give themselves a different future!
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