First, a summary: Rolling positions are a high-yield operation, but they also come with extremely high risks; caution is essential. The strategy of rolling positions (exponential growth) + compound interest model is a high-cost-effective strategy. Note that rolling positions mean exponential growth, while compound interest is a special manifestation of exponential growth, meaning all compound interest is exponential growth, but not all exponential growth is compound interest; spot trading is the compound interest model, while futures trading is more like a linear growth model. In summary, effective utilization (unrealized profits) is the core of rolling positions and compound interest!
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Let's officially start talking about rolling positions.
With a capital of 5,000, 10x leverage, and a 100% increase, the final profit is 5 million; this is rolling positions.
Adding to unrealized profits is not rolling positions. Because the current definitions and methods of rolling positions in the market are all directly copied from the views of Fatty, the Bitcoin King, and Tony, they are still not simple and understandable enough for novices with little investment experience. This article aims to provide a straightforward and rough explanation.
Assuming the current price of BTC is 10,000, opening a position with 5,000, using 10x leverage. At this point, BTC rises to 11,000, an increase of 10%, and you make a profit of 5,000. Okay, the next operation is very important.
1. The method of adding to unrealized profits is to add another 5,000, and then BTC rises to 12,000, increasing by another 10%, making your total principal and interest 25,000. (Capital of two 5,000 + profit of three 5,000)
2. The practice of rolling positions is to close the previous position, with principal and interest totaling 10,000, then open a new position. Subsequently, when BTC rises to 12,000, with the same 10% increase, your total principal and interest is 20,000.
Looking at it this way, isn't there much difference? But as long as you keep looping the operations, when BTC rises to 20,000, the increase is 100%. The total principal and interest of adding to unrealized profits is 325,000 (including 50,000 capital). The total principal and interest of rolling positions is 5.12 million (including 5,000 capital).
Why is the difference so big? Let's analyze it together next.
What is a complete position opening cycle?
Open position → Unrealized profit → Unrealized profit → Close position and exit
What is a complete unrealized profit addition cycle?
Open position → Unrealized profit → Add position → Unrealized profit → Close position and exit
What is a complete rolling position cycle?
Open position → Unrealized profit → Close position and reopen position → Unrealized profit → Close position and exit
OK, here are two more concepts, explained in a simple and understandable way. One is linear growth, which is an increase of 10%, 10%, 10%. The other is exponential growth, which increases by 10%, 20%, 40%, 80%. Linear growth is like pressing the gas pedal in a car, smoothly accelerating from 10 mph to 20 mph to 80 mph. Exponential growth, however, is like the development of technology, which grows in multiples; it starts slowly and accelerates faster as time goes on. For a rough example, based on solid evidence, it can be proven that humans mastered the use of fire 400,000 years ago, electricity 200 years ago, cars about 100 years ago, the internet 55 years ago, and mobile internet 30 years ago. This means that after electricity was mastered, human technology developed rapidly. Comparing that to the previous 400,000 years is like playing around. Getting back on track.
Here, let's make another analogy:
Ordinary position opening is linear growth; strictly speaking, contracts are not linear, but let's make this analogy for easier understanding.
Adding to unrealized profits is adding more positions based on linear growth.
Rolling positions represent exponential growth.
Here’s a manually calculated image for a more intuitive look. Each 5,000 circled is the additional capital added from unrealized profits.
At this point, do you think, wow! It's that simple! Isn't this a wealth code? But in reality, rolling positions operations have a set of strict essential conditions, including capital management, profit-taking, stop-loss measures, and the most important prerequisite—an unidirectional bullish market. The biggest risk behind such high returns is encountering a drawdown of over 10%, which could lead to total loss. However, I personally believe that through reasonable profit-taking and stop-loss methods, it can still be controlled. If we really encounter such a major market that happens once every four years, it can be utilized.
Summary: The high returns of rolling positions come with extremely high risks; caution is essential. The strategy of rolling positions (exponential growth) + compound interest model is a cost-effective strategy. Note that rolling positions mean exponential growth, while compound interest is a special manifestation of exponential growth, meaning all compound interest is exponential growth, but not all exponential growth is compound interest; spot trading is the compound interest model.
In the next article, I will analyze the application of rolling positions + compound interest model in the futures market, as well as the deeds of the Bitcoin King. Why mention the Bitcoin King? Because I personally believe his operating method is highly representative among the various experts who broke out during the last bull market. An ordinary person with a small capital turned 40,000 into 200 million in just over two years. I am keen on studying the legendary stories of these people, not to imitate them in order to grasp some wealth code, as their stories are generally not replicable. I simply find the ups and downs of their lives particularly interesting, like watching a good movie. If during this time I can improve my trading skills and concepts, it would be killing two birds with one stone, wouldn't that be great!
