$XRP 1. Trading is indeed not easy, especially if you want to pursue a professional path, it is even more difficult. It is essentially a game of strong logic and counterintuitive behavior. Those with weaker logic and poorer discipline often become 'cannon fodder' in the market.
2. From a logical perspective, the core of trading is the correct understanding of its essence, while the difficulty lies in constructing and strictly executing a trading system based on this understanding.
Many people enter the market feeling lost, lacking fundamental insight into the market, and their understanding of trading only stays on the surface or some aspect. For example, a master says, 'Cut losses short, let profits run.' This is correct, but in the hands of some people, they often only manage to 'cut losses short' without waiting for 'profits to run'; the master says to learn from Livermore about pyramid positioning, the reasoning is correct, but some people may lose everything using it; the master says 'Time is the rose of compound interest,' but some people hold the asset for ten years and it not only doesn't rise but falls instead; the master says 'Go with the trend,' yet some people enter the market and it seems as if the market is watching them closely, immediately reversing; and the master says to take high odds trades, don't be afraid to cut losses, even to 'fall in love with cutting losses,' this sounds a bit perverse, making people hesitant to place orders...
These situations actually reflect the superficial or one-sided understanding of the market by novice traders; their trading lacks 'roots.'
3. So, what is the fundamental understanding of trading?
Setting aside all right or wrong, or popular views, ask yourself: What is trading? In fact, trading is an exchange of one thing for another; it is a process of 'giving' and 'gaining.' Giving more and gaining less results in a loss; giving less and gaining more results in a profit.
People often say 'Big sacrifice leads to big gains, small sacrifice leads to small gains, no sacrifice leads to no gains.' This is actually a trap to get you to enter at a high cost. A big sacrifice does not necessarily lead to big gains; it may lead to large losses; a small sacrifice does not necessarily lead to small gains; it may lead to large gains, but it definitely will not lead to large losses.
A wise trader must be 'small sacrifice, big gain.' By accumulating wealth through many small sacrifices and big gains, this way allows people to maintain a stable mindset, even if they lose, it doesn’t matter. Those who want to 'big sacrifice for big gain' and gamble everything, even if they see the right direction, find it difficult to hold the position because the psychological pressure is too great, too counterintuitive.
Therefore, the most fundamental starting point of trading is to use a small cost and a relatively high winning rate to seek high odds opportunities. Building a trading system around this starting point is the right path. A good trading system must be based on risk control and enhance the winning rate along the direction of odds.
4. Along this line of thought, we need to consider several core issues in line with the trend:
• STEP1: Consider the distribution of high odds opportunities in the trend structure, and which positions are more likely to present high odds opportunities.
• STEP2: Think about how to obtain trading chips at a low cost (low cost means positions can be slightly larger).
• STEP3: Think about when to intervene, where the winning rate will be relatively high.
• STEP4: Think about what the exit mechanism is to ensure that when winning, you can win big, and when losing, you only lose small or not at all.
These questions are core to building a trading system, requiring a lot of effort to collect samples, conduct statistics, and backtesting, ultimately forming market intuition. Because good opportunities often pass in an instant, they do not give you much time to think; only a strong market intuition can allow one to make quick decisions, and behind strong market intuition is the support of extensive sample training.
5. Having a good system is not enough; one must also be able to execute it.
But in trading, necessity and chance often leave people perplexed. For example, you strictly execute a stop loss, but just after stopping the loss, the price skyrockets; at that moment, it’s hard not to regret: 'If I hadn’t stopped the loss, this trade would not only not lose but also gain a lot!' So the next time you reach the stop loss level, you might have a glimmer of hope, not stopping the loss, and as a result, the price really rebounds, and you make a profit.
Do you see it? The correct concepts and operations may not necessarily make you money; incorrect concepts and operations may instead be profitable! Setting rules for yourself and strictly adhering to them is inherently counterintuitive, especially when adhering to rules leads to losses, while breaking them results in profits; it becomes easier to trample on the rules. Even if you tell yourself 'I will definitely comply next time,' after tasting sweetness once, can you really stop?
As a trader, at this moment, you must believe in the law of large numbers, believe in probability, and believe in the system. Under the law of large numbers, the system's profitability is inevitable, but the premise is that the system you build can guarantee profitability under the law of large numbers in terms of internal logic and data statistics.
6. Therefore, issues at the human level, such as impatience, fear, greed, and anxiety, are just surface challenges of trading.
When I acquire chips at a low cost and you acquire chips at a high cost, our mindset will definitely not be the same. My system has been tested by the market; when encountering a reverse order, I will close it if I should, and cut losses if I should, without too much emotional fluctuation, because this is an inherent part of the system. But if your system has not been refined, whether logically or statistically, it is difficult for you to be convinced; when encountering a reverse order, panic is easy, and you won't be able to stand your ground.
Therefore, I believe a good trading system can smooth out emotional fluctuations. Speaking of this, what is most important in trading, and what is most difficult, I think you should already have the answer in your mind.
