Many people should know Master Tony, who is good at trading and also a kind person. He often donates to help others and shares his trading experience and methods. He has publicly shared a trading system that is very suitable for beginners. I think it is very necessary to tell everyone, as it can help establish a solid trading foundation early on and avoid making significant mistakes. Position management is crucial in trading; it is something to understand from the very beginning. Managing your position well, combined with comprehensible trading rules, forms a complete trading system. This trading system can prevent you from experiencing large losses from the start; making small losses and large profits is the shortcut to a successful trading life!
First, let's discuss the three principles of money management. Grasping these three principles makes it hard to incur significant losses. The subsequent high win-rate trading rules and strategies can be iteratively optimized over time, which requires experience and time! The first principle is strict stop-loss. After opening a position, you must set a stop-loss. This is a habit you should develop; do not harbor any lucky thoughts, nor should you be vague about your stop-loss. If you are always stuck in trades or facing liquidation, it means you are not trading adequately. We cannot predict the market's rise or fall with 100% accuracy, nor can we expect the market to reach profitability goals every time. We often find ourselves helpless in the market; the only thing we can do is control our losses! Stop-loss is the active power granted to us by the market, and it is the only active power we can implement 100% of the time. It allows us to gamble with the market with minimal risk each time! If you do not use it or choose not to, you will be led by the market. If you forget to set a stop-loss and incur losses, you should immediately close your position upon noticing, especially if your total capital loss reaches 30%; you must unconditionally close your position and exit, stopping trading for a while, preserving your capital for future opportunities. Do not expect to close your position after a rebound or correction, or think about averaging down losses; nearly all liquidations occur due to this!
The second principle is trial position and position management. If we choose to open positions using trial positions first and then add to the position, we must also set a stop-loss for the trial position! For example, if we have 50,000 in capital and plan to go long, we first open 10%, and if the market rises as expected, we can add to the position. The addition can follow a 1:1:1 or 1:2:1 ratio. For instance, if we initially open 10% and use a 1:1 ratio, we add another 10%. If we're wrong, we set a stop-loss. The stop-loss amount for the trial position should not exceed 2% of the total amount, depending on your risk tolerance; it is recommended for beginners to start at 1%. Beginners can also choose not to add to positions and open fixed positions each time.
The third principle is a wide stop-loss strategy; the stop-loss range should be set a bit larger. A wider stop-loss means you can have a smaller position! If we want to go long at 80,000 and set the stop-loss below 77,000, with a stop-loss range of 3,000 USDT, it may seem that a single mistake could lead to significant losses. However, in the long run, this approach yields a much better win rate than setting a smaller stop-loss range. Frequent small stop-losses can accumulate significant losses. The three principles of money management are simple, but it’s not easy to implement them. As long as you strictly adhere to the money management methods, do not over-leverage, and do not incur losses while increasing positions, and strictly set stop-losses, your account will not be depleted; profit is just a matter of time!
Tony's trend trading rules combined with money management form a complete and stable trading system. The most important thing in trend trading is certainly judging the trend! A trend is when the market moves continuously in one direction for a long time, which is easy to understand. We can use the highs and lows of Dow Theory to judge; for example, if the highs of the candlestick are increasing and the lows are also rising, that is an upward trend. Conversely, if the highs of the candlestick are decreasing and the lows are also lower, that is a downward trend. If the highs and lows of the candlestick move without regularity, it is a consolidating trend!
The trend can also be judged using a moving average; one is enough. Tony suggests that if the candlestick is running above the MA20, it indicates an upward trend, while if it is running below the MA20, it indicates a downward trend! MA20 refers to the 20-day moving average. This moving average is not magical; EMA or MA can be used, and 19 or 21 is also acceptable—there's no difference, mainly to establish a fixed rule for yourself! Once the trend is determined, you only need to choose a direction to open a position; we do not need to judge long or short, just need to know what the current trend is, and then open a position in the direction of the trend. We can find support to go long in an upward trend and look for resistance to short in a downward trend!
For example, when we engage in breakout trading, we go long when the upward trend breaks through resistance levels and short when the downward trend breaks through support levels. The larger the time frame, the more effective it is. However, there is a basic principle: all breakouts should be treated as real breakouts. Don’t guess whether it’s a true breakout or a false one. The market may only have one significant trend in a year. Only by treating all breakouts as real can we avoid missing out on opportunities, but this approach comes with a cost, as too many false breakouts can lead to frequent stop-losses. In everything we do, if you want to gain, you must first consider the cost. If you always try to avoid false breakouts, you will pay the price of missing out. If you always think about high selling and low buying, you will end up with a mindset of trading in a range, and when the trend comes, you’ll either miss out or hold losing positions!
The solution is to choose patterns that have oscillated for a long time in the market. The longer the market stays in a small price range, the stronger the trend will be after a breakout! The support and resistance mentioned here are generally the densely traded areas of candlesticks, such as support formed by multiple highs and lows of candlesticks, or trend lines, etc. For example, this trend line creates significant resistance for the price, and when the price reaches this point, it will encounter resistance and pull back. The larger the cycle of this support and resistance, the better the effect!
Auxiliary tools can be used, such as Fibonacci retracement to help judge support and resistance levels. Generally, using 0.382 and 0.618 is sufficient. If 0.382 or 0.618 happens to align with the previously mentioned support and resistance levels, the reference significance is substantial! Moving averages can also be used, such as MA20, MA60, MA120, etc. Generally, trading based on these moving averages has more funds involved, and there will be significant support and resistance nearby. In daily chart upward trends, the EMA21 often plays a significant role, and this line can even serve as a reference for increasing positions!
There are two ideas for taking profits: one is proactive profit-taking, which is left-side trading, where I feel it’s about to peak, so I reduce or close my position. For example, if the candlestick's movement deviates significantly from the moving average, or if the sentiment is overly heated, I believe it is likely to correct or peak! The advantage of this approach is that if you judge correctly, you can capture all the profits, but the downside is that if you judge incorrectly, you might miss out. The other is passive profit-taking, which is right-side trading, where you wait for the market to break the trend before taking profits. For example, you take profits after breaking the moving average or a certain pattern. There is no absolute good or bad between proactive and passive profit-taking; each has its advantages and disadvantages. Another powerful method is to not take profits at all. All three methods are essentially about probability. For instance, could you have imagined Bitcoin reaching 100,000 four or five years ago? Seven or eight years ago, it was even less likely. Can you ensure that after selling, you can buy back at a lower price? Only by never taking profits can you enjoy dozens or even hundreds of times the increase; however, this method has clear drawbacks, as 99% of market trends do not reach such heights, so most of the time, you won't make money!
Trading rules are a summary of experience, and their effectiveness is presented in the form of probabilities. The price at a downward trend resistance level may not necessarily fall; it could also become a breakout from a bottom. No one can predict this with 100% accuracy; we can only say that the probability of a decline is relatively high at this time, but everything is just probability! According to the trend trading system mentioned above, the source of positive expectation comes from the risk-reward ratio. The ratio of profit to loss is the key to determining whether a trade is worth making. If you plan to open a long position at 80,000, with a stop loss at 79,000 and a loss of 1,000 USDT, then your expected profit must be at least 2,000 USDT, meaning your expectation is for the price to rise to 82,000 for this trade to be worthwhile. We must make big profits and incur small losses; only then can we ultimately make money. In actual trading, a risk-reward ratio of 3:1 is considered a worthy trade. Any expectation below 3:1 should not be pursued, except for certain geniuses. At the beginning, it’s difficult for us to rely on probabilities for profit; we can only rely on a large risk-reward ratio. The concepts of probability and risk-reward ratios are effective not only in trading but also in all aspects of life!
