Whether in the stock market or the financial market, if you do a good job of position management, you will outperform most people.
The topic I am going to share with you now is the management of trading positions. No matter it is spot or contract, how you manage your positions directly determines your risk control level, average holding price and the final profit size. This can be said to be the most important point besides direction and mentality.
Position management includes fund management and risk control. Don’t take the word position for granted. Position is more about when to add positions, how much to add, where to reduce positions, and how much to reduce. It is also a roadmap of “entering the market, adding positions, reducing positions, and exiting the market”.
So what is a position?
Position refers to the ratio of the total amount you use for trading to the funds you have completed trading. For example, if you have 100,000 yuan for trading and have used 30,000 yuan to buy coins, then your position is 30%, which is 3 layers of positions. This buying behavior is called opening a position or building a position.
If half of the total funds are used for buying, it is called half position. If the proportion of the purchase funds to the total funds is small, it is called light position. If the proportion of the total funds is large, it is called heavy position. Buying again after building a position is called adding position. When selling part of the position, it is called reducing position. Selling all is called clearing position. Holding without selling temporarily is called holding position. Always keeping part of the position without operating is called bottom position. After selling all, no more buying is called empty position.
Six basic principles of position management:
First: Don’t operate with a full position, always keep a certain proportion of reserve funds
Full position operation is like fighting a war without reserve troops. Especially when the market is unstable, full position operation will cause a passive situation where buying and selling are difficult if the market falls. If you sell, you will lose money. If you don't sell, there will be no extra funds to add positions to dilute the cost. When other market conditions come again, there will be no funds to use or you will have already lost money. Full position operation will cause an imbalance in mentality due to market fluctuations. Full position operation is more likely to result in a liquidation rather than the fantasy of getting rich overnight.
Second: Buy and sell in batches to reduce risks, spread costs, and maximize profits. The advantage of buying in batches downwards and selling in batches upwards is that your average price is lower than others and your profits are higher.
Third: When the market is weak, you should hold a light position, and in a bear market, it is best not to exceed half of the position. When the market is strong, you can hold a heavy position appropriately. In a bull market, the recommended limit position is 8 layers, and the remaining 20% is short-term or reserve funds to deal with unexpected events.
Fourth: As the market changes, corresponding position adjustments should be made, and positions should be increased or reduced appropriately. People are active. When the market is strong, I can appropriately reduce my positions to grab some profits. When the market is weak, I can appropriately add positions to reduce costs. This is making corresponding adjustments.
After adding positions, a small price rebound will be very close to the cost or even exceed the cost.
For example: when the trend is obviously downward, you should reduce your position. When the trend begins to stabilize and rise, you should increase your position. When you are unsure of the market and do not understand it, do not increase your position or add positions easily. You can increase your position when you see support and reduce your position when you see pressure, and realize your profits.
Fifth: When the market is sluggish, you can go short in the short term and wait for opportunities to come.
At the end of a bull market, in the early stages of a bear market, or before the bottom stabilizes, you can short or lightly position and wait for opportunities, but as long as you still want to make long-term investments in this market,
If you want to fight, don't keep your position empty for a long time, because if you don't participate for a long time, you will gradually lose your sensitivity to market changes and your sense of the market.
Exercise your sense of the market. Short market operations can be carried out in the late bull market and bear market.
Through the short market, you can use a small amount of funds to operate and summarize experience and skills.
It is very important to make corresponding arrangements in the early stage.
Sixth: Position change: Keep the position when it is strong and sell when it is weak
Whether it goes up or down, as long as there is fluctuation, it is a good market. If there is fluctuation, there is an opportunity to make money. If a currency goes sideways for a long time or the fluctuation is small, you need to change positions flexibly. Don't fall in love with a certain currency. You should make rational choices. Seize other market opportunities.
The above 6 principles are applicable to the spot and contract position management method, which is batch operation. Batch operation refers to the act of dividing the invested funds, opening positions, increasing positions or reducing positions in batches. Batch operation can be completed within a day or over a period of time.
Why do we need to do these actions? Because the currency market is unpredictable, and rises and falls are high-probability events. No one can accurately predict short-term price fluctuations, so enough funds must be set aside to deal with unpredictable fluctuations.
If you are not sure enough and operate with a full position, once the market changes in the opposite direction, it will bring huge losses. Therefore, the risk of full position investment can be reduced by batching, which can dilute the cost and is the basis for reducing costs and amplifying profits.
How to batch: divided into equal batches and non-equal batches
First: Equal allocation, also known as the rectangular buying and selling method, refers to dividing funds into several equal parts, buying or selling in sequence, and the proportion of funds for each purchase and sale is the same. Usually 3 or 4 equal parts are used. For example, buy 30% first, and if you start to make a profit, buy another 30%. If you don't make a profit, don't intervene with new funds for the time being. When the price of the stock reaches a certain high point or the market changes, reduce the position and sell in batches.
Second: Non-equal allocation, which means buying or selling funds in different proportions, such as 1:3:5, 1:2:3:4, 3:2:3, etc. The shapes generated by the proportions are divided into: diamond, rectangle, hourglass, etc. The most commonly used is the pyramid buying and selling method.
Third: With the same funds and the same position, use different methods for comparison.
Pyramid: 1000 for 5 layers, 1100 for 3 layers, 1200 for 1 layer, average price 1055
Inverted pyramid: 1000 for 1st floor, 1100 for 3rd floor, 1200 for 5th floor, average price 1144
Equally divided rectangle: 1000 for 3 layers, 1100 for 3 layers, 1200 for 3 layers, average price 1100
The price rises to 1200 and the profits are: Pyramid 145, Inverted Pyramid 56, Rectangle 100
The price drops to 1000 and the losses are: Pyramid +55, Inverted Pyramid -144, Rectangle -100
By comparison, we can see that the pyramid type has the lowest cost and greater profits when prices rise. When prices fall, the risk is greater. The inverted pyramid is just the opposite. If the price falls to 1,000, the inverted pyramid loses 144. In actual application, it is more reasonable to use the positive pyramid method when buying and the inverted pyramid method when selling.
After the currency price has fallen sharply and reached the bottom but we are not sure whether it has reached the bottom, if we buy at this time, we are afraid of being trapped if it continues to fall. If we do not buy, we are worried that the market will reverse and rise and we will miss the opportunity. In this case, we can use the pyramid position building method.
Two methods of position management:
1. Left side position management
(1) Do not invest all your funds at once; buy in batches.
(2) You can divide your funds into several parts. When you cannot accurately determine the bottom, buying in batches is the most appropriate way to spread the cost price.
(3) The bottom line of covering positions should be handled flexibly according to changes in market conditions. Do not cover positions too frequently, otherwise the effect of flattening the currency price will be poor. Investing 20%, 30%, or 50% first is suitable for aggressive investors who are keen on bottom-fishing.
(4) The initial amount of funds entering the market is relatively small. If the price of the purchased currency does not rise but continues to fall, the position should be gradually increased in the future, and the proportion of the increase should gradually increase, thereby diluting the cost. This method has a lower initial risk, and the higher the funnel, the more substantial the profit.
1. Right side position management
(1) Buy 1: When the 5-day moving average crosses the 10-day moving average upward, increase the position by 30%.
(2) Buy 2: When the price of the currency breaks through the lifeline, continue to increase the position by 30% when it falls back to the lifeline, ensuring that the total position reaches 60% in the initial stage of the upward trend.
(3) Buy 3: If the price breaks through the neckline or other important resistance level and then falls back to stabilize, it indicates that the reversal upward trend has been established. Increase the position by 20% again. The total position should reach 80%, and the currency should be held for price to rise.
(4) Buy 4: When the 5-day moving average and the 10-day moving average form a golden cross again above the lifeline, this is a typical signal to accelerate the rise. At this time, the remaining 20% position should also be bought in time to maximize profits.
Finally, let me share some of my personal suggestions on how to do good trading.
First: technical aspects, including technical indicators, K-line patterns, trading volume, trend judgment, bull-bear distinction, buying and selling point grasp, support and pressure judgment, and the use of volume, price, time and space.
This varies from person to person. Some people don’t understand the technology and have no interest in it, so there’s nothing we can do about it.
Second: Fundamental analysis, including relevant macroeconomics, policies, supervision, the project itself, etc.
Third: News, bad news and good news, operate when the news and fundamentals are good.
Fourth: Time cycle, intraday short-term, medium-short-term, medium-long-term, long-term (trend trading), confirm the trading cycle, achieve the consistency of the operation cycle, such as doing long-term, do not frequently short-term buying and selling operations. When doing long-term trends, the adjustment fluctuations in the middle are acceptable and bearable as long as there is enough space and it is the mainstream, the price will rise again.
Fifth: Mental control, remember not to shake, make a plan and implement it, don't discount it. These are personal experiences. If you learn it, it's yours. If you don't learn it, there's nothing you can do. There are two key points. First, the method and function of position management, and second, Wolong's personal experience and suggestions.
Finally, Wolong will share with you the core secrets of my more than 10 years of cryptocurrency trading, which has enabled me to achieve wealth freedom and class transition.
The art of stop loss, take profit and capital control
1. The Art of Stop Loss and Stop Profit
Preface: In the process of financial transactions, there is bound to be a problem of entering and exiting the market. Entering the market should be based on the principle of following the trend, and exiting the market involves the problem of stop-profit and stop-loss. It is recommended that investors who trade in the short and medium term consider adopting a semi-automatic trading mode, manually buying, and mechanically selling through automatic trading software with stop-profit and stop-loss functions. Buying should be slow, requiring at least 3 or more reasons, and selling should be fast, but if the price rises or falls below the position, the position should be closed immediately. Losses should be small, and profits should be large. How to coordinate needs to be adjusted according to personal circumstances.
Stop loss is relatively simpler than stop profit, but when executing the stop loss plan, people are very painful. In principle, you should hold on to profitable orders and stop loss orders in time, but in practice, it is often the opposite. Once the orders of traders are trapped, they will have a fluke mentality, hoping that the market will turn around according to their wishes, and are unwilling to close the losing positions. In practice, I have seen many investors have a common phenomenon: they are particularly happy to close profitable orders, but they are reluctant to stop loss on losing orders.
The necessity of stop loss
Investment itself is not risky, only out-of-control investment is risky. Learn to stop loss, never fall in love with loss. Stop loss is far more important than profit because capital preservation is the first priority at any time, and profit is the second. Establishing a reasonable stop loss principle is quite effective. The core of the prudent stop loss principle is to prevent losses from continuing to expand.
Why is it so difficult to stop loss?
It is important to understand the significance of stop loss, however, this is not the final result. In fact, there are many examples of investors setting stop loss but not executing it. In the market, the tragedy of being swept out is happening almost every day. Why is it so difficult to stop loss? According to the reflection effect, it is the adventurous spirit of traders that is at work. There are three specific reasons:
First, the mentality of luck is at work. Although the trader knows that the trend has broken, he is too hesitant and always wants to wait and see, which causes him to miss the great opportunity to stop loss.
Secondly, frequent price fluctuations will make traders indecisive, and frequent wrong stop losses will leave traders with lingering memories and shake their determination to stop losses next time;
Third, executing stop loss is a painful thing, a bloody process, and a challenge and test of human weakness.
In fact, we cannot be sure whether each transaction is correct or wrong. Even if we make a profit, it is difficult for us to decide whether to exit immediately or wait and see, not to mention when we are in a loss state. The human instinct of pursuing risk and greed will make every trader unwilling to make less money, and even more unwilling to lose more.
Therefore, strictly implementing the stop-profit and stop-loss plan involves a good trading mentality, that is, the issue of self-discipline. Traders need to cultivate good self-discipline in trading.
Stop loss and take profit methods
1. Profit-taking method
First: Stop profit when the trend turns. Traders have a set of trading and capital management plans. When making a plan, you should have an entry price and a profit target. When you trade with the trend, as long as it is a profitable position, you should hold it. The trend does not change, and the position does not change. When the market price reaches an important support and resistance level, you should pay close attention to the market trend and use various methods to analyze and study whether there are signs of a trend turn. If you think the market has turned, you should stop profit.
Second: When you choose the right time to enter the market and enter the market according to the trading plan, and it turns out that you are trading with the trend, then you should hold your position firmly and let it make profits as the market changes. When there is an adjustment, don't be surprised and still hold the position. But there is a situation where you must close the position, that is, when the market price falls back to the price where you opened the position, and the profit of your position is almost eaten up, you must stop profit and close the position.
Third: When you trade with the trend and the profit of the position you hold is relatively rich, and you are very worried that the market will adjust, or the market price reaches the support or resistance level, you can also use the gradual profit-taking method to avoid risks and expand the results. For example, you have established a short position, and the market has been going down all the way, and the profit of the position you hold is quite rich. When the market price falls to a relatively obvious resistance level in history, you can reduce your position by 113 or half of the position, continue to hold the remaining position, and wait and see the trading situation near the resistance level. If it crosses the resistance level and continues to go down, you should resume the position that has been closed; if the market price shows signs of a reversal near the resistance level, you should close all positions and make a profit.
2. Stop loss method
First: the moving average (5-day, 10-day, etc.) stop loss method. In the moving average strategy, Lao Xia mentioned the attraction of the moving average on the price. The 5-day and 10-day moving averages will have a suppressing and supporting effect on the price. When the currency price breaks down the support of the moving average or breaks up the suppression of the moving average, the long or short positions held by the trader should all be stopped out.
Second: stop loss method when the highest price falls back (3%, 5%, etc.). When the long position held falls back from the stage high and the drop reaches 3% or 5%, choose to stop loss and exit.
Third: Stop-loss method when breaking through the support level (important support/pressure level, trend line, strength line, etc.). When the market falls below the support level, rising trend line, strength line, etc., the long position established should be exited immediately to avoid further losses; conversely, when the market breaks through the pressure level, falling trend line, strength line, etc., the short position established should be exited immediately.
Fourth: Resistance line stop loss method. When the market trend does not exceed and turns downward at important pressure levels, box tops, concentrated trading areas, upper rails, strong lines, etc., all long positions that have been established should be stopped and exited; conversely, when the market is downward, at important support levels, box bottoms, etc., long positions that have been established should be stopped and exited.
Fifth: Pattern stop loss method. When you encounter bearish patterns such as double tops, triple tops, head and shoulders tops, and dark cloud cover, you should stop loss of the long positions you have established in time. Conversely, when you encounter bullish patterns such as double bottoms and triple bottoms below, you should stop loss of the short positions you have established in time.
2. The Art of Capital Control
The most troublesome thing in trading is risk control, such as setting take-profit and stop-loss, position control, and mentality control. Here I will focus on position control and how to reasonably control capital allocation to maximize profits.
A few tips for digital currency investment: When the price does not move, don't rush. This is a simple principle, but it is difficult to do. Many people can't help themselves at this time, and end up losing a lot of money.
If the price of a currency lingers at a high or low point for a long time, it may be time for a change. At this time, you need to be patient and wise and wait for the best time to make a move.
When building a position, you have to proceed steadily, layer by layer, so that you can feel at ease.
If the price of the currency goes up or down like crazy, you have to adjust your strategy quickly. Don't sell heavily at high prices, and don't buy heavily at low prices. The market changes quickly, and you have to follow its pace to succeed in the digital currency industry.
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Important things should be said three times!!!
