⚠️ When watching the market, the importance is: trend > structure > level.
⚠️ In trading, the importance is: position management > risk-reward ratio > win rate.
⚠️ If you have 1000 in capital and a stop loss of 50%, you will have 500 left. If you want to return to 1000, you need to earn 100% on the remaining 500. From this, it can be seen that position management is crucial; it can not only prevent you from being liquidated but also allows you to exchange small stop losses for large profits or make it easier for you to break even.
1️⃣ First, positions can be classified into full positions and incremental positions.
▶️ Full position in simple terms means that you put all your money together in a big wallet. If you have 1000, even if you use 10% of the funds, 100, to open a position, if you do not set a stop loss, the losses can exceed 100 until your entire 1000 is lost, leading to the collapse of your big wallet.
▶️ Position management in simple terms means you have several small wallets that do not interfere with each other. You can put 100 in one small wallet and 200 in another. If one small wallet loses all 100, that small wallet is wiped out and will not affect the other small wallets or your main wallet.
⚠️ So which one should you choose? If you have strict stop losses, you can choose to use all your capital, because with strict stop losses, you will not be liquidated. What I am going to say about position management is also suitable for using all your capital.
2️⃣ Position Management
▶️ First, you need to understand that leverage is not important; what matters is the size of the position you open. For example, if your capital is 1000, opening a 2% position with 100x leverage is no different from opening a 10% position with 20x leverage. That is, 1000✖️2%✖️100x🟰2000🟰1000✖️10%✖️20x. Do you understand? Both positions are 2000.
▶️ The most important thing is that every stop loss must be controlled within 5%-8% of your capital. For example, with a capital of 1000, each stop loss should be controlled within 50-80.
▶️ Assume that the current price of Bitcoin is above 100k, then you arrange a strategy to place a buy order below. Open a primary position at 100000, add at 99000, and set a stop loss at 98000. You use 25% of your 1000 capital to enter in increments of 20x, i.e., entering 10% at 100000 and 15% at 99000. Thus, you have opened a 5000 position with 250, where the average price is (100k✖️10% + 99.9k✖️15%) ÷ 25% = 99400 (the actual price will be slightly lower than 99400, which involves the amount of currency to be bought, not elaborated here). If you stop loss at 98000, that’s a stop loss of 1400 points, which is 1.4% of 99400. Therefore, your loss is 1.4% of 5000, which is 70, and 70 is 7% of your 1000 capital. Do you understand? If not, read it again, and if you still don’t understand, keep reading until you do!
▶️ So this 7% is within an acceptable range, but it's still a bit large. It's best to control it around 5%. You can enter 10% with 100k, or 10% with 99.9k, or enter 8% with 100k and 12% with 99.9k.
▶️ So how do you make money? It’s about the risk-reward ratio. If your average price is 99400 and your stop loss is 98000, that’s a stop loss of 1400 points. If the risk-reward ratio is greater than 2:1, then the take profit should be 2800 points, which means a take profit at 102200. In this case, you would lose 5% of your capital and earn 10%. Therefore, for every profitable trade, you can afford to lose two trades. Even with a win rate of 33.3%, you wouldn't lose money; as long as the win rate is greater than 33.3%, you will always be profitable! Of course, when the risk-reward ratio reaches 1:1, we usually move the stop loss to the average price and take some profit; we cannot let floating profits turn into floating losses. So, a win rate of 33.3% is not enough; you should aim for higher.
▶️ If some so-called eternal profit master tells you to open a position of 100000, add to the position at 98000, and set a stop loss at 96000, totaling a stop loss of 3400 points, and then tells you to take profit at 101000 with only 1000 points, you can feed him poop💩.
⚠️ This is why position management > risk-reward ratio > win rate.
⚠️ Trading is about mathematics, probability, and psychology. If you don’t learn, you will lose money. So please read carefully until you understand!
