Fund management methods and principles for contract trading

Investing 8000 in the crypto space, after a contract liquidation loss of 8 million, I re-entered the crypto space with 200,000. In two years, I raised it to 20 million. The core wealth secret for being able to turn things around and achieve financial freedom in the crypto space is: (the methods and principles of fund management in trading). I hope to share this with everyone and that it helps you on your trading journey!

Trading is like running a business; fund management is a key factor that can determine survival. Stability is the first element you need to consider. Traditionally, fund management includes issues such as the profit and loss ratio of a single trade, the risk level of overall trading, and the issues of increasing positions and exiting during the trading process. We can summarize it into a few points: 1. Combination: investment direction 2. Position: how much to invest 3. Timing: when to enter and exit

Trading is like running a business; fund management is a key factor that can determine survival. Stability is the first element you need to consider. Traditionally, fund management includes issues such as the profit and loss ratio of a single trade, the risk level of overall trading, and the issues of increasing positions and exiting during the trading process. We can summarize it into a few points:

  1. Combination: investment direction

  2. Position: how much to invest

  3. Timing: when to enter and exit

First question: Does the lack of success in trading relate to the small scale of capital?

Answer: The size of trading capital has no direct correlation with whether you are a successful trader. Many people cannot even manage a small account well; how can they believe they can manage a large account? Different sizes of accounts require different strategies and methods of operation. Many fail with small capital accounts mainly due to improper methods.

Large capital accounts: have a stronger ability to withstand drawdowns, can set wider stop-loss levels, but once a stop-loss is triggered, the loss is significant; profit potential is greater, and return cycles are longer; more suitable for trend trading.

Small capital accounts: have a weak ability to withstand drawdowns, with stop-loss settings being quite close to the current price, resulting in relatively small absolute losses. The profit cycles are shorter, and rapid returns can provide emotional satisfaction to traders. More suitable for swing trading.

In summary, based on the characteristics of large and small capital accounts, large capital is suitable for big trends, while small capital is suitable for short-term trading.

Second question: Most people have small capital accounts; can you introduce management methods more suitable for small capital accounts?

Answer: If you want a small capital account to grow rapidly in a short time, you may need to pay attention to the following issues:

1. Survival first. Regardless of the size of the account, this is the first principle.

2. Only trade short-term swing trends. The biggest drawback of a small capital account is its very weak ability to resist drawdowns; even a slight drawdown may lead to liquidation. Therefore, it is best to only engage in intraday short-term trading.

3. Regardless of profit or loss, you must limit your daily number of trades. It is best not to exceed three trades per trading day. If the first two trades result in stop-losses, it is advisable not to continue trading to avoid being affected by your mindset. Additionally, be sure to take profits in a timely manner; do not continue trading just because you made profits in the three trades of the day.

4. Only trade one variety at a time. For small capital accounts, do not think about diversifying investments; it is unrealistic. Since the account capital is already limited, trading multiple varieties simultaneously will only reduce your risk tolerance, potentially leading to greater losses.

5. Be good at seizing big opportunities. A small account needs to grow its capital; if it only relies on making a little profit every day, it will take a long time, just like the compound interest model mentioned earlier. Therefore, for a small account to grow rapidly, you must seize opportunities well, capturing a big opportunity every so often, and then patiently wait for the next opportunity to arise. This can also be understood as winning with quality rather than by trading frequency.

6. Increase positions, be bold yet cautious. I have mentioned many times before not to trade heavily. However, if you want to profit significantly from speculative trading with a small amount of capital, you must dare to trade heavily. If you want a small capital account to grow quickly, you must increase your position size while seizing opportunities. At this time, do not fear heavy positions, and do not equate heavy positions with liquidation. The core reason most people face liquidation is never because of being over-leveraged, but rather due to entering the market too easily, frequent stop-losses, or even not using stop-losses at all.

A student once asked me what the most important thing in investing is. I replied with four words: fund management. My answer surprised my students; as someone who studies trends and technical analysis, almost everyone would think I would say that the most important thing in investing is to grasp trends and go with the flow.

To become an excellent investor, fund management is of utmost importance; I call it the lifeblood of investing.

1. The importance of fund management

Many people are looking for secrets to profit in the market, believing that by accurately judging market directions, they can achieve stable long-term victories in the market. In reality, the most important factor for stable profits in the market is fund management.

Warren Buffett believes that safety is the first principle of investing: "The first rule is to preserve your capital, the second rule is to preserve your capital, and the third rule is to remember the first two rules."

George Soros said: I desire to survive and am unwilling to take catastrophic risks. If we do not understand how to stop losses, we will head towards destruction.

Larry Williams said: Fund management is the most important secret of my investing life; there is nothing more important than that.

Many investment masters and trading experts do not have a high success rate, yet they can continuously profit and earn money. The reason is that they are better at grasping trends and fund management. An effective fund management strategy can allow investors to earn substantial profits in major trends while not increasing risk.

It can be said that all successful investors excel in fund management, while those who perform poorly or even go bankrupt ultimately fail in fund management. Many excellent individuals have fallen due to neglecting fund management.

Although financial trading carries significant risks, it is not that one cannot have large positions or full positions, but rather that one must gradually accumulate positions under the premise of controlling risk as the market continues, until fully invested. Only in this way can one achieve minimal risk and maximum profit. This is the essence of fund management.

Second, the concept of fund management

What is fund management? Simply put, it is using reasonable capital investment and strict risk control to minimize the risks of capital, making the investment stable and sustainable, which is called a good fund management model.

Under an excellent fund management model, the pursuit is for long-term stable returns, seeking enjoyable, relaxed, and happy investments rather than short-term windfalls. The pursuit of short-term windfalls corresponds to the risk of liquidation. As long as you have the idea of achieving huge profits, you will definitely experience liquidation and undergo anxiety or even nightmares. This is because everything has dual aspects; the type of profit corresponds to the type of loss. Investments that flow steadily correspond to long-lasting and stable gains. The reason for this is low risk. In high-risk, high-leverage investment areas, ensuring your long-term survival is the true path and the fundamental principle.

3. Methods of fund management

1. Test positions lightly and enter in batches;

2. Hold positions in the direction of the trend and increase profits;

3. Set stop-loss levels to limit losses;

4. Let profits grow sufficiently while keeping losses small;

5. Do not increase positions against the trend, buying more as the price drops in an attempt to lower costs, etc.

4. Characteristics that great traders possess

First, the funds these individuals use for investment must not be their life-saving money, but rather funds that, even after losses, do not affect their living conditions. This is the first step in fund management.

Second, decisively increase positions when the trend is clear to magnify profits, but I must emphasize that the most important thing about increasing positions is moderation, ensuring that it does not violate the fundamental principles of fund management.

Third, do not be greedy. Even when the trend is clear, and even when increasing your positions, you must fully consider the adverse effects that sudden reversals may have on total capital; this point is very critical.

The key to good fund management is overcoming greed; only by overcoming greed can one better avoid omnipresent risks, make rational choices, and operate based on reason and wisdom rather than desire or imagination. When desire burns and imagination ignites, wisdom turns to ashes, leaving no room for rationality.

I have previously mentored many students trading together; many started trading at the same time with the same methods and plans. After some time, some lost money while others made profits; the gap remains significant. The main difference lies in fund management: light positions when earning, heavy positions when losing; running fast when making money and slow when losing, etc. There are also those who stubbornly hold onto losing positions, failing to admit mistakes, and suffering liquidation or heavy losses.

I must particularly remind you that when investing, you cannot always fantasize about making huge profits. This is the most fatal flaw in the investment process and a common mistake many people easily make. Following fantasies, relying on fantasies, and using fantasies to invest is truly dangerous. Imagine a general leading troops into battle who constantly fantasizes about glorious victories and being rewarded with promotions; how terrifying that would be.

Therefore, we must stay away from illusions and think calmly. Consider what opponents are thinking, what the market is thinking, what large investors are thinking, and what ordinary retail investors are thinking and doing. Whether you are investing in real industries or leveraged cryptocurrency investments, you must pay attention to these factors and think from these perspectives, especially in leveraged forex, futures, and other investments. These are zero-sum games; the money you lose is precisely the profit of others, and your profit is also the loss of others. Every market participant wants to make money. In this situation, you not only need to think about what you should do but also what others will do and what choices they will make. Your thoughts must be thorough and in-depth. Only after seeing through the opponent and the market can you take action, ensuring comprehensiveness and success.

Basic principles that fund management must follow

First principle: Control positions.

You must always trade lightly; never trade heavily, especially in leveraged markets. Have a scientific position management plan, and strictly implement this plan.

My fund management method includes volatility; for example, the 'number of lots to buy' and 'average volatility' I provided in my morning analysis. The calculated number of lots considers the normal volatility range of the variety and is strictly operated according to that number, which generally prevents erroneous stop-losses.

Second principle: Do a good job in risk control.

1. Start by controlling risk at the source.

2. Reduce positions or even go flat before significant risk events.

3. Consider capital as primary; if capital draws down to a certain proportion, liquidate without conditions.

Many people do not truly understand what investment is. What is investment? Investment is actually a game of avoiding traps and seeking treasures. The premise of treasure hunting is to avoid traps. Only after effectively avoiding traps can one successfully find treasures. More than 95% of investors fail to grasp this principle; they are solely focused on the treasure, ignoring the traps, and end up perishing on the road to seek treasures.

Everyone must always remember a principle: the importance of survival is always greater than the importance of profit. In other words, those who can ensure their own safety greatly enhance their survival capability will have very considerable final investment returns.

For those making high-leverage investments, at least you should give yourself 10-20 opportunities to withstand large risks, meaning the ability to incur 10-20 losses without facing liquidation. Thus, divide your capital into 10-20 parts, using only one part for investment while allocating the rest to risk reserve funds or risk control capital. Even if you have divided your capital into several parts, you must only enter the market when the trend is particularly clear and there is a major market movement.

Incorporating this into our investments, dividing capital into 10-20 parts may mean that your short-term profit ability could decrease, but due to significantly reduced risks, you will gain the ability to profit in the long term.

Giving roses to others, the fragrance remains in hand. Thank you for your likes, follows, and shares! Wishing everyone financial freedom by 2025.