I have been in the cryptocurrency space for a full decade, experiencing three bull-bear transitions. Starting with an initial capital of 50,000, I have now achieved financial freedom.
In this industry, at first, I lost hundreds of thousands, just like gambling. But later, I started to study seriously, searching for information, learning relevant knowledge, and continuously enhancing my skills. After several years of ups and downs, I finally welcomed a turning point in 2021. I began my comeback journey. In just over two years, I have grown from 50,000 to now eight figures!
Core principle - Three don'ts in trading cryptocurrencies:
Avoid buying during rises: When market sentiment is high, prices are often inflated. Conversely, buy during market corrections or declines to capitalize on fear-driven low-cost assets.
Diversify risk: Do not put all your funds into one coin. Diversified investments can spread risk, so even if one coin performs poorly, it won't cause a fatal blow to the overall investment.
Control position size: Full position trading limits your flexibility. Keeping a certain amount of cash reserves allows for quick strategy adjustments when market trends do not align with expectations.
The complete trading process should be
1. Market analysis; you can use any technical analysis.
2. Position management. After entering the market, you need to consider what may happen next; what to do with profits, whether to add positions, take full profit and exit, or continue to hold. What if profits expand again? What if there's a loss? Should you cut losses, hold the position, or partially exit first? How much loss will lead to a full exit? Position management will consider both risk and return factors.
3. Strictly execute trades; when your plan is clear, you must start implementing it without letting market fluctuations disrupt your thoughts.
4. Summarize the transaction. After completing a transaction, a review of previous transactions over a period of time is needed. The review sample should cover three market conditions: rising, falling, and fluctuating. Based on this, we can improve and optimize market analysis, position management, and the execution process of trades. We must first find the entry point based on our trading skills, which is definitely a support line. When the market is above the support line, the trend is upward; when the market breaks below the support line, the trend is downward. More importantly, the support line is also the basis for defining potential risks!
When the stop-loss is placed below this support line, the potential risk range is determined. If it touches the initial stop-loss area below the support line, you should exit first or close most of the positions, then gradually reduce positions as the price continues to fall until all positions are closed. The potential profit range is above the support line; the upward trend in the market has not ended, so theoretically, the potential profit is unlimited. After entering the market and rising, we can hold the original position for further gains or gradually add positions based on the existing position. We will adjust the stop-loss according to market developments. When the market behaves as we expect, we should move the stop-loss closer to the cost price or below a fixed support line, as moving the stop-loss continuously reduces the risk in the market, which is equivalent to locking in floating profits.
When the price rises again to a new support or resistance level and then starts to fall back, the area below this support or resistance level is the area for reducing positions, and at this time we should gradually close all positions. In summary: first, we need to find a support and resistance line for the cost. When the price rises far from the cost line, we gradually add positions, and the additions must be decreasing. When the price begins to fall away from the cost line, we gradually reduce the positions, and reductions must also be decreasing. Your position management skills must balance risk and reward!
Next, let's talk about position management methods, which involve operating in batches. Batch operations refer to dividing the invested funds and performing actions such as building positions, adding, or reducing positions in batches. Batch operations can be completed in a day or over a period of time.
Why take these actions? Because the cryptocurrency market is unpredictable, both rises and falls are highly probable events. No one can accurately predict short-term price fluctuations, so it's essential to leave enough capital to cope with unpredictable volatility.
If you operate with full positions without sufficient assurance, and the market changes contrary to your expectations, it could lead to significant losses. Therefore, using batch methods can reduce the risk of full capital investment, dilute costs, and form the basis for lowering costs and increasing profits.
Next, I will explain how to operate in batches: divided into equal batch operations and non-equal batch operations.
First: Equal allocation, also known as rectangle trading method, refers to dividing funds into several equal parts and buying or selling in sequence, with the same proportion of funds for each purchase or sale. Usually, 3 or 4 equal parts are used. For example, first buy 30%, if you start making profits, buy another 30%. If there are no profits, do not inject new funds temporarily. When the price of the coin reaches a certain high point or the market changes, gradually reduce positions and sell.
Second: Non-equal allocation, referring to dividing funds into different proportions, buying or selling in ratios like 1:3:5, 1:2:3, 3:2:3, etc. Based on the ratio, different shapes such as diamond, rectangle, hourglass, etc., common is the pyramid type trading method.
Third: Equal funds, equal positions, using different methods for comparison.
Pyramid: Buy 5 layers at 1000, buy 3 layers at 1100, buy 1 layer at 1200, average price 1055.
Inverse Pyramid: Buy 1 layer at 1000, buy 3 layers at 1100, buy 5 layers at 1200, average price 1144.
Equal share rectangle: Buy 3 layers at 1000, buy 3 layers at 1100, buy 3 layers at 1200, average price 1100.
Price rises to 1200 with profits: Pyramid 145, Inverse Pyramid 56, Rectangle 100.
When the price drops to 1000, losses are: Pyramid +55, Inverse Pyramid -144, Rectangle -100.
Comparing shows that the pyramid type has the least cost, yielding greater profits when prices rise. However, it bears more risk when prices fall.
The inverse pyramid is exactly the opposite; if the price drops to 1000, the inverse pyramid loses 144. In practice, it is more reasonable to use the pyramid method for buying and the inverse pyramid method for selling.
After a substantial drop in the price, if we’re unsure whether we have reached the bottom, if we buy at this time, we fear being trapped by further declines. If we don’t buy, we worry about missing out on an upward reversal. In this case, we can use the pyramid position-building method.
For example:
If a certain coin drops to a position of 10 USDT, buy 20% of the position. If the price drops to 8 USDT, then enter with 30%. At this time, the average cost is 8.6 USDT. If the market continues to drop to 5 USDT, then enter with 40%, averaging 6.5 USDT.
If the price rebounds to 6.5, it is considered breakeven. If it rebounds to 10 USDT, it means a profit of 3.5 USDT. But if you fully invest at 10 USDT, when the price returns to 10 USDT, you just break even.
During the price rise, the lower the price when buying, the larger the position should be, and as the price gradually rises, the position should gradually decrease. This method of buying belongs to right-side position building. This cost is relatively safe; even if the market falls, as long as it doesn't break the holding cost, there's no need to panic.
This method has a heavier initial position, so it requires a higher level of understanding of market fluctuations, making it suitable for technical players.
The inverse pyramid selling method is the opposite of the pyramid; it has a wider upper part and narrows down, resembling a funnel. When the coin price rises, gradually reduce the quantity held, meaning the number of coins sold increases as the price rises. This is the method for reducing or clearing positions.
The core of position management is the above points. Once understood, I believe that in the future, whether for spot or contract positions, you will have a clear mindset.
If you can read this, then I believe you are definitely a loyal fan!
Next, let's conduct practical teaching! (The following text will be explained in plain language, as I fear you may not understand if it's too formal!)
Spot position management.
Example: You have 100,000 USDT; you should divide it into ten parts! Prepare to buy ten coins! Allocate 10,000 USDT to each coin! Each time you enter the market, it's the same amount of money!
Example: For the XX coin, build a position at 50% of the price, and supplement 50% of the position at XX price. The 50% position means allocating 10,000 USDT for each coin, building with 5,000 USDT and reserving 5,000 USDT for supplementation. Avoid heavy positions for coins you are not confident about!
If this coin is good, I will enter and buy a little more, buying 30,000 USDT. If this coin is average, I will enter and buy 10,000 USDT!
If you do not follow this position, then a problem will occur. If you heavily buy a coin worth 30,000 USDT and lose 10%, that is 3,000 USDT. If you lightly buy a coin worth 10,000 USDT and it gains 10%, that is only 1,000 USDT. You would still be at a loss!
That's all for the plain talk on spot trading. If you don't understand, watch it a few more times!
Contract position management.
ETH position allocation calculated by quantity!
The maximum position for 1,000 USDT capital cannot exceed 5.
The maximum position for 3,000 USDT capital cannot exceed 10.
The maximum position for 5,000 USDT capital cannot exceed 20.
The maximum position for 10,000 USDT capital cannot exceed 30.
The maximum position for 30,000 USDT capital cannot exceed 50.
The maximum position for 50,000 USDT capital cannot exceed 100.
BTC position allocation calculated by quantity!
The maximum position for 1,000 USDT capital cannot exceed 0.5.
The maximum position for 3,000 USDT capital cannot exceed 1.
The maximum position for 5,000 USDT capital cannot exceed 2.
The maximum position for 10,000 USDT capital cannot exceed 3.
The maximum position for 30,000 USDT capital cannot exceed 5.
The maximum position for 50,000 USDT capital cannot exceed 10.
The contract is actually the same as the spot, with the same initial capital for each order and the same number of orders placed each time. Take profit when it should, cut losses when it should, and treat yourself as a trading machine! In the end, I will conquer you with strength!
I have been in the market for many years, deeply understanding the opportunities and pitfalls within. If your investments are not going well and you feel regret over losses, leave a comment with 999! I will share insights!
