Author: Leo
Translation: Luffy, Foresight News
The art of speculation can be boiled down to two points: how much you can earn when you're right and how much you can lose when you're wrong. Everyone reflects on those trades they were certain would be a huge success and questions why their positions were so light; similarly, they look back on hesitant trades and wonder why they kept adding to losing positions.
Position management is one of the hardest skills to master, but improving this ability is the most effective leverage. All top traders are constantly exploring how to enhance it because once a judgment error occurs, the consequences can be unimaginable. Although I have many shortcomings in execution, position management is one of the things I do best in my career, compensating for many other mistakes I've made.
One of my favorite stories is about Stanley Druckenmiller and George Soros discussing 'decisively increasing the bet in asymmetric opportunities'; they are the most outstanding fund managers.
In 1992, Druckenmiller served as the chief portfolio manager at Soros's Quantum Fund. Druckenmiller noticed that the Bank of England was artificially supporting the pound and firmly believed that this support would not last long. He approached Soros and explained his viewpoint.
'George, I'm going to sell £5.5 billion tonight and buy German marks, which means we're going to bet 100% of the fund's capital on this trade.'
As I was speaking, he started to frown, as if to say, 'What’s wrong with this kid?' I felt he was about to overturn my argument, and he said, 'This is the most absurd method of money management I’ve ever heard. What you’re describing is an incredible one-way bet.'
We should invest 200% of the funds into this trade instead of 100%. Do you know how often this happens? About once every 20 years. What is wrong with you?
Druckenmiller ultimately executed this trade with a double position, which later became one of the most famous trades in history, earning a profit of $1 billion in a single day. Soros even earned the nickname 'the man who broke the Bank of England' because of this.
The most profitable trade I've made to date was the swing trade when Coinbase and Robinhood announced the listing of $PEPE in November 2024. While executing the trade, my mind was filled with this legendary story, thinking, 'What would Soros do?'
That day around 6 AM, I was sitting on the toilet as usual, scrolling through my phone, checking group chat messages, monitoring Twitter trends, and observing charts. At that time, I had already made a small long position in $PEPE because the charts looked great, and my intuition prompted me to buy, but the position had incurred significant losses, which made me a bit anxious.
I was intently staring at the 1-minute candlestick chart on the trading app when suddenly I saw a huge green candle shoot up, and I instantly broke even. Clearly, I was a bit excited but also very confused, and then I received a Twitter notification: 'PEPE is listed on Robinhood.' I was still doubting whether this was real news because it was so unexpected, so I verified it in group chats and on Twitter. When I confirmed the news was true, a switch in my mind was triggered, realizing this would be 'that once-in-a-lifetime trade.'
At the time of the Robinhood news release, its price suddenly soared from $0.000012 to $0.000016. The reason this news was so eye-catching is that since $DOGE and $SHIB, no other memecoin has been listed on Robinhood. Moreover, PEPE previously had no convenient purchasing channels in the U.S.; Americans either bought it on-chain or through unknown exchanges. Listing on Robinhood opened the floodgates for a large amount of retail money into PEPE, and the market quickly understood this.
Additional background: At that time, the all-time high (ATH) for $PEPE was $0.000017. One of my favorite trades is breaking through historical highs, and I realized that those selling at this price level did not understand the importance of this news.
I bought five times the current position at market price, almost leveraging the entire portfolio two times long (position size = two times the portfolio value). I looked at the dollar value on the trading app and felt a wave of nausea; if I'd had breakfast, I would have definitely thrown up. I never thought about investing so much in altcoins, let alone meme coins, but I was very calm inside because I knew it was the right choice.
About an hour after the Robinhood news release, Coinbase also announced the listing of $PEPE, breaking through the historical high. Later that day, Upbit listed $PEPE, pushing the price to $0.0000255. I didn't even dare to look at the trading app because the fluctuations in profit and loss were too significant and would affect my mood. At its peak, I made about 100% profit in less than 12 hours. It was a crazy day. Although I didn't close at the peak, I still locked in considerable gains, exceeding the total profits of the past few months, highlighting the value of adjusting positions in asymmetric opportunities.
These are stories of successful heavy positions, but not discussing the other side would be a crime. Behind every successful large-scale concentrated bet, there are countless stories of people going all-in and ultimately going bankrupt. This is precisely why investing correctly is so difficult: finding a balance between believing your theory and betting boldly versus respecting the market isn't easy.
Sometimes you're full of confidence and heavily positioned, yet you incur losses for several days, so you decide to cut losses and exit. Strangely, it’s as if the market god is watching your position; as soon as you close it, the market immediately reverses, and the price moves exactly as you argued. And sometimes you choose to hold on, only to wake up a week later to find your portfolio down 50%. Undeniably, this is a skill that is difficult to master.
I personally have had many experiences of heavy losses, but one thing has kept me going: very strict risk management. If the price action does not align with my theory and losses persist for a while, I will cut my losses. No matter how convinced I am, the market is always right.
Never cling to losing trades; better trades are just around the corner. There will always be many opportunities and trading ideas worth heavy positions, but if I lose a significant portion of my portfolio, I won't have enough position to seize the best opportunities.
Avoiding significant losses at all costs is indeed the most important concept in any risk game. What 'significant loss' means to you is relative. In my early days of building a smaller portfolio, I had to take on greater risks. I easily placed 10-15% of the portfolio on high-conviction trades because that is the nature of the market I was in. Everything on-chain is extremely illiquid and volatile, so I had to accept larger drawdowns to validate my theories. As my portfolio size grew, the liquidity in the markets I entered improved slightly, and I couldn't afford to take on such large risks. Clearly defining your risk tolerance is crucial so that each trade you make, you know exactly how much you can afford to lose. I've seen many talented and amazing traders exit the game due to an irretrievable massive loss.
That's why one of my favorite trading strategies is breakouts. I love top breakouts because they are clearly defined risk trades, either profitable or failing quickly. For example, my timing to trade $PEPE was when the price struggled at the highest point but failed to break through, or after breaking through, it fell back below the ATH. In both cases, I had clear exit points, so it made perfect sense to build a large position at that level.
Looking back at my trading career so far, all significant gains in my portfolio have come from 'all-in' returns. Every year, only a few trades create most of the profits. Other than that, it's really a survival game. You must remain sharp enough to identify those trades that can yield huge returns, but also disciplined enough to avoid losing all your chips on thoughts lacking conviction and to refrain from doubling down on losing positions.
In the next stage of my life journey, a major area I focus on improving is position management. I excel at taking large bets but am very poor at holding positions with substantial unrealized profits. This is my inner risk management awareness at play, but if I could apply my theories more consistently instead of frequently trading, I would go much further.
