A complete operating system, or operating rules, contains answers to the following five questions:
1. What coin to buy? (Choose the trend state that matches your style according to the trend form).
2. When to buy? (Signal criteria for entry)
3. How much do you want to buy? (This is easy to understand)
4. How to buy (entry steps determined according to risk management principles)
5. Exit.
First of all, everyone needs to really understand a concept: cryptocurrency speculation is similar to gambling. Every time you enter the market, the probability of failure is similar to the probability of success. If it is a trend-following trading style, the number of failures is far greater than the probability of success. Therefore, there is no "sure-win" technology. When you use each technical method, you must be mentally prepared that it may be wrong this time.
Only in this way can you truly establish a sense of risk awareness. Of course, everyone may be tired of hearing more principled things, so let me explain it with examples below.
First of all, this method is a trend-following transaction, which means it does not participate in the sideways trend; of course, you may ask, how can I determine whether it is sideways or trending? It is very simple, just look at a line. Everyone has different habits. Some people may like to look at the MA99 line, some like the MA60 line or other lines. It doesn’t matter. All are fine.
I usually use the MA99 line. This line is used to observe and confirm the current trend. If the slope is upward, it means long, and if it is downward, it means short. If it is horizontal, it means sideways. It is very simple, right? It is very simple, but speculators are all smart people, and smart people will not accept simple methods, because simple methods cannot reflect their intellectual advantages, so they invented a bunch of professional terms and dazzling technical methods.
But we play with coins to make money, not to show off our IQ. Those who show off their IQ in the speculative market will die quickly. Okay, no more nonsense, let's get back to the topic. PS: I found that many friends who play with coins don't even know the most basic moving averages. It's really bold, but it doesn't matter. The following charts are combined, and novices can also understand it.
I use the slope direction of a moving average as a filter to filter out most of the sideways trends. Because I am a trend trader and only participate in trend markets, I choose the MA99 line for this line, and my operation time period is 4 hours. Of course, my later revised method is to add a trend line. Although the moving average itself is a trend line, the moving average is lagging. Everyone understands that the purpose of adding a trend line is to increase profits while not expanding risks.
The trend line is a straight line, so it is more sensitive than the moving average in terms of trend reversals. Of course, there will be more false signals, so risk management is important.
The first step is to divide your funds into 4 equal parts (actually I want to say divide it into 5 or even 10 parts, considering that most people’s capital scale is not large, and virtual currency is not like futures and stocks, which have negatively correlated sectors, so it is not necessary, 4 parts are enough, the purpose is to diversify risks).
Each share corresponds to one trading pair. In other words, your investment in each trading pair is one share of capital (1/4), and your total capital can buy 4 trading pairs.
Then, in the second step, the funds for each trading pair you trade are divided into 2 parts. For example, if you have 100,000 U, divide it into four equal parts, each of which is 25,000 U. When you use a fund of 25,000 U to trade, this 25,000 U is divided into 2 parts, each of which is 12,500 U. Okay, the work of dispersing funds is completed, and now it is the work link. Now, a certain trading pair has the first signal that meets the entry (the falling or rising trend line is broken, and multiple K-lines move sideways). This situation is the first signal, buy at 12,500 U, for example, the following figure:
This is LINKUSDT. The computer version of binance is annoying. You can’t take screenshots. Once you use the screenshot, it will be hidden. I had to take a photo. The pixel is a bit poor, but fortunately it can be seen clearly.
The first signal is that the downward trend line is broken, and multiple K-lines move sideways (preferably small real body K-lines with shadows).
There are two breakthroughs in the above picture. The first one is marked A, but it is not a horizontal movement of the K-line, so it does not count, because any movement, except for the water drop of the Trisolaran, without a sharp angle turn, will have a buffer and transition. Of course, it doesn’t matter even if it is regarded as a signal. At most, it will lose 1% (relative to the total principal) once, which is not a big deal. Here we will regard it as it is.
Okay, the downward trend line was broken at point A. We bought 12500U at the highest cross K line (18.968). The initial stop loss standard is as follows: the highest is equivalent to 1% of the total principal, that is, 1000U, which is 8% relative to 12500U; this should be combined with the previous low point. If the previous low point is far away and exceeds 8%, it is set at 8%. If it is less than 8%, it is set a little lower than the previous low point. Please note that the stop loss trigger is based on the closing price.
The previous low price is 18.005, and the stop loss is a little bit lower, set at 17.98. We see that the closing price of the K-line that fell through is 18.021. It broke through the previous low but the closing price was not triggered. Should we sell? Of course, because the previous low has been broken.
Then according to the closing price of 18.021, the entry price is 18.968, the difference is 0.947, the percentage is 4.9%, less than 8%, the loss is 624U, within the expected risk range. Now, we need to correct the trend line and make it pass through point A. Compared with the original trend line, the angle becomes smaller, which is good for us, which means that the next trend line breakthrough will be more powerful.
Looking at the above picture, the corrected trend line was broken again. The original allocated funds of 25,000U minus the previous loss of 624U, there are still 24,376U. After being divided into two equal parts, each part is 12,188U. We entered the market at the price of 18.291 and set the stop loss price at 18.58 below the previous low. The triggered loss ratio is about 1.6%, that is, 160U (relative to 12,188), which is far from the maximum stop loss ratio of 8%.
Then, we track and observe, and as long as the stop loss is not triggered, we wait for the second signal to appear.
The second signal is: MA99 line flattens and then rises significantly, the price stands above MA99 line and closes below the recent high. In the above figure, the price is above the line and breaks the previous high, buy the second 12188U at 18.992.
At this point, the first part of the original four equal parts has been purchased. The stop loss price is set at the low point closest to the MA99 line. Of course, you can also set it at the low point that broke the MA99 line before, as long as the range does not exceed 8% of 18.992 yuan.
Now, let's look at this position. Our first purchase price was 18.291. When the second signal's price reached 18.992, 3.8% of 12188U, or 467U, had been generated. If the stop loss was triggered at this time and the price closed below 18.386, for example 18.2 yuan, then the second loss of 4.2%, or 508U, would offset the profit of the first signal 467, resulting in a loss of 41.2U, which is basically equal to zero risk.
The rest is that we keep moving the stop loss upwards, based on the most recent low point, and if the closing price falls below the previous low point, we will close all positions. At this point, we can use the same method and steps to find another trading pair that meets the conditions, buy the second portion of funds, then the third and fourth portions, until all are bought. The future work is to monitor whether the prices of the four trading pairs have fallen below the previous low point. If not, hold on. If it has fallen below, close the position that has fallen below, and use the money from the closed position to find another trading pair that meets the conditions, and so on.
We can see that the price did not fall below the previous low until here, and all positions were cleared at the price of 20.245.
Let's take a look at the profitability of this position:
First purchase price 18.291
The second purchase price is 18.992
The liquidation sum of the two funds is 20.245, then:
(20.245-18.291)/18.291=10.68%
(20.245-18.992)/18.992=6.59%
[(12188*10.68%)+(12188*6.59%)]/25000=11.4%
The position gained 11.4% profit, which is about 2850U, and the total principal of 100,000U is 2.85% return. If we calculate it based on the stop loss amount of 1000U (1R) each time, we gained nearly 3R in this operation.
Of course, I have tried the strategy of clearing out when the rising trend line falls below, rather than waiting for it to fall below the previous low. However, there is a big problem, which goes against the principles of trend trading style. Trend trading is to offset 70% of losses with about 30% of profits. If you clear out according to the profit-taking strategy when the trend line falls below, you will often miss the big trends. For example, after breaking the trend line, the stock may go sideways for a dozen or so K-lines and then rise strongly and finally double.
For example, if the price falls below the stop profit point according to the trend line, it will be sold at around 21 yuan, and the profit will be much higher. However, what if it falls below the trend line but does not break the previous low, and then rises all the way to 25 yuan or even 30 yuan? You will miss most of the profit trend.
Therefore, the stop loss and take profit positions are adjusted to the point where the price breaks the previous low. The most difficult part for trend following traders is that they often watch their profits disappear. For example, the highest price this time was around 21 yuan, and by the time of the clearing price, it had dropped by almost 1U, and nearly 6 points of profit were lost.
This is actually still good. Sometimes the profit high point is 50 yuan, for example, and the price is 30 yuan when it falls below the previous low. The profit of 20 yuan, 40% of the profit is gone. But there is no way to do this, because for cryptocurrency trading, we cannot guess the trend, we can only watch it. The fate of trend trading is that the number of losses is more than the number of profits. Even if there are filtering conditions, it can reach 60:40, 60% of the transactions are losses, and 40% of the transactions are profitable. Therefore, the amount of profit must be greater than the amount of loss, so we can beat the market in the long run. If you guess the high and low points, you are doomed. According to probability, the probability of you guessing the high point and the location is about 1/1000 of the probability of you winning the first prize of the double-color ball - that is also a probability of one in ten thousand, which is smaller than the probability of you getting into a car accident.
You may ask, why should the funds be divided into four parts to buy four trading pairs? Can't I increase the position of one trading pair in four times? It can also achieve the effect of risk diversification.
It is OK, but it is often impossible to add all the positions, because adding positions three or four times means creating three or four new highs. This kind of big trend is relatively rare. We need to diversify risks and improve capital efficiency, right? If there is only one trading pair, half or one-third of the funds will be lying dormant for a long time, which is wasted. If the first position principal is increased, the risk will be magnified. Therefore, it is better to diversify horizontally and increase the trading pairs.
This article ends, to be continued, remember to like and follow. I wish you a big profit!
