Friends are discussing these topics, and it always feels like profit-taking and stop-loss are a persistent issue in everyone's mind, inescapable and untouchable... once learned, easily forgotten.
Conventional profit-taking and stop-loss are merely about setting trigger prices and transaction prices, allowing the price fluctuations to be controlled within a certain range to achieve the goal of locking in profits or losses.
From a broad perspective, profit-taking and stop-loss can be divided into two types:
1. Position-based profit-taking and stop-loss
As the name suggests, it means playing with money you can afford to lose, which can be your entire invested position (for example, planning to lose 3% of the total position) or a part of the invested position (half or 10% of that 3%). But note that the entire invested position is not the total position.
2. Price-based profit-taking and stop-loss
This involves entering and exiting near support or resistance levels. Price-based stop-loss can be further divided into two subcategories:
(1) Static profit-taking and stop-loss
This is strictly executed according to the trading plan established based on prior support and resistance, requiring pre-set orders. The advantage is a fixed ratio, while the disadvantage is that the market itself is dynamic and can be frequently triggered.
(2) Dynamic profit-taking and stop-loss
This is what I often refer to as following the structure, entering near cost after a pullback, etc. It requires some foundational knowledge, such as familiarity with the life line trading method, entering when a buying point is formed in the structure, and exiting when approaching resistance. The drawback is that it requires mastering a large amount of foundational knowledge and experience, which is not favorable for newcomers, while the advantage is that it is not easily triggered and can flexibly follow most market trends. For example:
Long position entry: Enter near support level
Exit
Profit-taking: Exit when rebounding to near resistance,
Stop-loss: Exit when dropping below the cost area
The exit for long positions is also the entry point for short positions, and the market cycles between long and short positions of varying sizes.
The biggest question people have is, what to do if dynamic stop-loss encounters a black swan event?
Technically, black swans have precursors; if you really can’t tell, be flexible with profit-taking using dynamic methods, and use static methods for stop-loss.
Personally, I adhere to the principle of "fixed amount trading, timely withdrawal" for short-term trading, using position-based stop-loss + dynamic profit-taking and stop-loss; for long-term, it is simply position-based stop-loss.
