In this market, we often hear words like retail investors losing money and novice losing money, but we also often see some experts’ net worth halved in a wave of market trends, and a certain fund manager losing more than half of his net worth in a year and then resigning. Just like last year, most funds lost an average of 15%, and a large number lost more than 30%, and so on. There are too many such cases.
Therefore, we have to understand that losses are not exclusive to retail investors. Even professional traders with impressive performance in this market cannot escape this fate.
The way of losing money is the same no matter who you are. In the final analysis, it is not a problem of market conditions. If the market is not good, it may become difficult to make money, or the market style has changed, or the market trend does not conform to the system settings. We all say that sometimes the market goes astray, and we have to admit that such a situation exists, but it is nothing more than struggling on the edge of the net value. If we really encounter a large-scale net value drawdown, we must think about where the problem lies.
Be it speculation or investment, you are just betting on the future market fluctuations. To be more rigorous, you need to set a framework and range, bet on market fluctuations within this range, and then wait to be proven right or wrong. So this matter needs to be done under a plan. Usually traders, including many veterans, do not know what to do after buying or entering the market. They always buy and wait for something good to happen, regardless of the fact that the market is not in the direction you are trading. Many people always hope that the market can move in the direction of their own trading, but never think about what to do if the market does not go as expected.
The above is what we call a trading plan, but it is only a part of it. If you don’t have your own plan, if you don’t have an action standard of “If the market is like this, I will do this,” then you will soon fall into emotional paralysis, and you will not be able to measure the quality of your trading, or whether your trading is correct. Many people are result-oriented, but that is not necessarily right, because making money on a certain transaction may not be right, and losing money on a certain transaction may not be wrong. Loss is just a wrong way and attitude. The amount of loss depends on how much you are willing to invest, and then what you may get. The combination of these two opposing relationships can show whether your long-term foreseeable returns are positive or negative.
Fear and regret are powerful emotions. Once you put your mindset in this state, it will be difficult for you to make the right trades. This is also a common problem for most retail investors or unprofessional traders. They have no plans or trading plans of their own. They don’t understand why they are trading, and they don’t understand what channels and market conditions they should use to make profits.
Position management, capital management, and risk management that we often talk about are all very simple issues. How do you establish your regular mechanism? Under this framework, how big is the stop loss of your order? What is the maximum amount of your single loss? Through a simple mathematical calculation, you can figure out how big your position can be for this transaction. Position management and risk management are not necessary conditions for profit, but they are necessary conditions for your long-term survival in the market.
But many people don't understand this truth. They always want to take larger positions and trade at a faster frequency to gain smaller market opportunities. This is a cognitive problem. Just like I often tell some novice friends not to hold heavy positions, not to go against the trend, and not to increase positions at a loss. They often dismiss it, but unfortunately, if they are still in this market a few years later, they will obediently regard the above three "don'ts" as their trading bottom line.
Some things are just so strange that you have to experience them first before you can understand them. Some pain seems to be only the pain of other people. Only after you understand it through practice can it be truly transformed into your "knowledge". Therefore, the threshold of knowing is actually very high. The simple two words "light position" may cost tens of thousands or even more before you can understand the importance of it.
Regarding trading strategies, that is, from the perspective of you and the market's response, what method you choose depends on how you understand the market. Why do some people question when we talk about a simple trading strategy? The reason is very simple, because they don't think from the bottom of their hearts that this is a profitable way, but they don't have a complete system or logic, or cognition that can fully explain the market and their understanding of the market. But what I want to tell you is that a simple strategy itself already has profitable attributes, you just don't use it well.
Therefore, your strategy actually depends on how you understand the market and how you view market fluctuations. Regarding such technical-related issues, it is recommended to start from the Dow Theory or the key points mentioned by Jesse Livermore. Don't study any advanced theories by yourself. The effectiveness of technical analysis lies in influencing market psychology through graphics. In other words, what kind of market breakthrough can give what kind of emotion to the entire market. If you understand this, you will naturally understand why some point breakthroughs will form trends.
Why did the market turn? Because there was a structural breakthrough. The basic condition for the formation of a trend is that the market broke through certain points that everyone was paying attention to, forming a contrast between long and short positions with a huge disparity in strength. The key is that this problem was seen by everyone in the market, which would form a combined force, and the combined force is the basis of market trend sentiment. Only with this basis can a trend exist. Otherwise, there is no trend. The same is true for a trend turn.
What is a trend? A trend is an ongoing behavior. The market is breaking through new highs, breaking through the consolidation structure, and something is happening that may change a past state. This will form a trend. Why does the market break through new highs, whether it is a new high for a week, a new high for a month, a new high for a quarter, or a new high for a year? Such a simple trading model can become a long-term tracking model. That is because a trend will inevitably break through new highs to form. Any sensational market starts with a breakthrough of a new high and ushers in a magnificent market. If you understand this, you will know why the trading model only needs a very simple trigger mechanism.
Although the market behavior is simple, the psychology of traders is complex. This is something that most people do not understand. Most people always think that the market is too complicated and trading is too simple. They want to make profits by defeating the complex market. But in the end, we need to first accept the simplicity of the market and that technology has boundaries. This boundary is people's own cognition. Only on this basis can we and have the possibility to form an effective technical theory. Only then can we establish a basic rule by repeating simple patterns within a familiar range and realize profits through the rules.
Therefore, what makes a profit is never a certain method, nor a certain technical system, nor the so-called market rules you have discovered, but a system established through your cognition. Within this system, you constantly repeat the right things and establish a simple risk control mechanism through a strategy, which is to lose money reasonably, and then hold positions quietly when the trend comes. In the end, you lose less when you lose in the market and earn more when you earn. There is no other way.
Therefore, for traders with insufficient cognition, this is not only applicable to retail investors, but also to those traders with impressive performance. Some people need to establish a correct cognitive system, understand what can be done and what cannot be done, and clarify the boundaries of their abilities through this range division. Another group of people, or when you have done the first step, then the next step is to use a series of means to firmly guard this boundary. The reason why many people have traded for many years and ended up with a bleak outcome is that they always think that they are capable and begin to repeatedly test and jump within the boundaries of their abilities. In the end, they did not lose to the market, but to themselves.
I’m Qiqi. If you want to delve deeper into the cryptocurrency world but can’t find a clue and want to get started quickly, please consult Ye Jincun.
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