Heavy positions lead to failure, no stop-loss leads to failure, greed leads to failure, blind entry leads to failure, frequent operations lead to failure, and left-side operations lead to failure.
These experiences can only be understood after enduring multiple painful lessons.
Unfortunately, retail investors do not learn from experience, and they suffer huge losses for these reasons each time. Are you also paying for the same mistakes? Every loss is a profound lesson, but why do most traders still struggle to avoid repeating the same errors?
First, heavy positions lead to failure; the cost of greed. Over-leveraging is one of the most common mistakes traders make. When you invest a large amount of money in a trade, you are essentially replacing rational decision-making with a gambler's mindset. Any trade carries risk due to market volatility, and heavy positions only amplify that risk, leading to potential losses that you cannot bear. Over-leveraging often results in a broken capital chain or even complete exit from the market. The unpredictability of the market means you can never guarantee profit from every heavy position. It is advised to diversify investments and strictly control the risk exposure of each trade, keeping the risk of each trade between 1% to 2%, ensuring that even if losses occur, they will not have a devastating impact on overall capital.
Second, no stop-loss leads to failure; the grave of complacency. Trading without stop-loss++ is the second major pitfall for traders. Without a stop-loss plan, you cannot effectively control risk, ultimately being passively beaten by market fluctuations. Trading without stop-loss can prevent you from exiting in a timely manner during losses, leading to continually escalating loss amounts, or even total loss of capital. It is advised to set stop-loss points clearly before each trade and strictly enforce them. Stop-loss is not a sign of defeat, but rather a basic respect for market risk.
Third, greed leads to failure; the trap of desire. Greed is one of the weaknesses of human nature, and traders often attempt to earn unrealistic profits, resulting in neglect of the potential risks in the market. Overly pursuing profits can leave you hesitant during profitable moments, causing you to miss the best exit opportunities or even lead to profit giving back. It is advised to set reasonable profit targets and exit promptly when the target is reached. Remember, trading is not charity; your goal is steady profit, not getting rich overnight.
Fourth, blind entry leads to failure, the risk of ignorance. Blind entry is a manifestation of a lack of trading plan; without a clear entry logic, you are gambling rather than trading. Blind entry can cause you to lose your direction in the market, ultimately falling into the abyss of losses. It is advised to formulate a detailed trading plan before entering, including entry points, stop-loss points, take-profit points, and risk-reward ratios. Only when the plan is clear can you enter with peace of mind.
Fifth, frequent operations lead to failure due to lack of patience. Frequent operations are a manifestation of traders' eagerness for quick success. Over-trading not only increases transaction costs but also raises the probability of making mistakes. Frequent operations will leave you exhausted in the market, ultimately leading to costly errors due to fatigue and emotional fluctuations.
Sixth, left-side operations lead to failure due to wrong timing. Left-side operations refer to forcefully entering the market when the trend is unclear, often leading to losses. Left-side operations expose you to huge risks in market fluctuations, ultimately resulting in losses due to misjudgment. It is recommended to wait until the market trend is clear before entering. Right-side operations may miss some profits, but they can effectively reduce risk.
In the trading market, many people believe in 'frequent trading' and 'daily compounding', thinking this is a shortcut for small capital to grow quickly. However, the truth is: frequent trading will not make you rich; rather, it will lead you into a deep abyss. Today, we will unveil the fatal traps of frequent trading from multiple perspectives, including mathematical probability, cognitive dimensions, and market structure, and tell you the true core of growing small capital—vision and understanding.
1. The mathematical trap of frequent trading: Why are you destined to lose money?
1. The 'invisible killer' of trading costs.
Assuming the cost of a single trade is 0.5% (including commission and slippage), if you trade 5 times a day, the annual trading cost will be as high as 625%! This means that even if your win rate is very high, frequent trading will eat away your capital due to costs.
2. The brutal truth of win rates.
Even if you have a 60% win rate, what is the expected return of 100 trades? The calculation is as follows:
(60 profitable trades x 1% - 40 losing trades x 1%) - 100 trades x 0.5% = -0.3%. This means that the ultimate result of frequent trading is likely to be a loss.
3. The warning of the Kelly formula.
The Kelly formula tells us that when trading frequency exceeds the optimal betting frequency, the capital curve will exhibit exponential decay. Frequent trading is like walking a tightrope on a cliff; a slight misstep can lead to a fall into the abyss.
2. Cognitive dimensionality reduction: Frequent trading reduces you to 'market leeks'.
1. The trap of time frames.
Research shows that noise accounts for as much as 92% in 5-minute candlestick charts, while noise in daily charts is only 37%. Frequent traders are often misled by short-term fluctuations and ignore the real trends.
The psychology of decision quality collapse, 'Miller's Law++' states that the effective decision-making limit of the human brain per day is 7+2 times. Frequent trading can lead to a cliff-like drop in decision quality, ultimately resulting in emotional trading.
3. Huge waste of opportunity cost.
Frequent traders spend 90% of their time capturing 10% of low-quality fluctuations, while missing out on the real big trends. This behavior of 'picking sesame seeds and losing watermelons' is destined not to achieve qualitative changes in capital.
The truth of market structure: Why are you always a loser?
1. The cruel reality of liquidity layering!
Top institutions can access T+0 arbitrage opportunities, while retail investors can only trade secondary liquidity. Frequent traders are destined to be at a disadvantage in this unequal game.
2. The secret of volatility.
Taking the S&P 500++ as an example, data from the past decade shows that over 70% of annual gains are often concentrated in 7-10 trading days, and frequent traders are likely to miss these key opportunities.
3. The dilemma of negative-sum games++.
High-frequency trading is essentially a negative-sum game. The more participants there are, the closer the expected returns approach zero. Frequent traders are like gamblers constantly betting in a casino, ultimately losing all their chips.
4. The winning strategy of top traders: vision and understanding.
1. Opportunity filter++: only seize flowing opportunities.
Top traders establish a three-dimensional evaluation system (trend strength, volatility quality, risk premium), choosing only the highest quality opportunities to trade.
2. Focus on key points.
View capital as a wave of probability! Only release it at critical points of momentum. This 'crocodile-style' waiting philosophy can lead to exponential growth in your capital curve.
3. Cognitive arbitrage: exploiting the collective misjudgment of the market.
True excess returns come from cognitive differences. For example, the negative price event of crude oil futures in April 2020 is a typical case of collective misjudgment in the market. Top traders are adept at capturing such macro misalignment opportunities.
5. The path from small capital to large capital.
1. From 'addiction to trading' to 'strategic patience'.
The essence of trading is the realization of cognition, not the accumulation of operations. When you learn to patiently wait and seize key opportunities, capital growth will come naturally.
2. Build a 'major event impact model'. Spend three months recording and validating the intensity of 10 fundamental turning points on asset prices. This training can elevate your opportunity recognition ability to a new dimension.
3. The mindset determines the outcome. The core of growing small capital is not frequent trading, but a profound understanding of the essence of the market. Only by enhancing cognition can you remain undefeated in trading.
Conclusion:
Frequent trading is a path destined for failure, while true successful individuals often possess a vision and understanding that surpass the ordinary. As Soros said in 'Financial Alchemy': 'True excess returns come from cognitive differences, not trading frequency.'
I hope this article helps you escape the traps of frequent trading and find your own path in trading. Remember, trading is not gambling; it's a battle of cognition. Only by constantly improving yourself can you remain undefeated in the market.
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