Explaining the method of rolling positions in simple and understandable terms, without much nonsense, directly to the point:
1. You opened a small dumpling shop: You invested 1000 as startup capital (this is your initial principal).
2. Business is good, making money: At the end of the month, after costs, you made 200 (this is the profit).
3. The key operation comes - 'rolling positions':
First step: Lock in profits (take them safely): Take the 200 earned and make sure to actually take it out. Don’t let it just be a number on the account.
Second step: Preserve the principal (safety net): Your initial 1000 principal must remain untouched! This is the foundation for your comeback, and it absolutely cannot be lost.
Third step: Profits become new capital (rolling): Now, you take the 200 profits earned as new capital. So now the 'total funds' you have for operation are:
Initial Capital: 1000 (safely stored)
New Capital: 200 (the rolling money)
* Total operational capital = 1200.
4. Continue operating (next round): You use this 1200 (mainly the new 200 earned) to continue selling dumplings.
5. Made money again: Suppose this month you earned another 240 (based on the 1200 principal).
6. Roll positions again:
Lock in profits: Take out the earned 240.
Initial Capital: 1000 remains untouched.
Rolling new capital: Transform the 240 profits into 'new capital'.
* Now:
Initial Capital: 1000 (safe)
New Capital: 200 (from the first round) + 240 (from the second round) = 440
* Total operational capital = 1440.
7. Repeat this cycle...: Just like a snowball, every time you earn money, take out a portion (or even all profits) to wrap around the snowball, making the snowball (your operational capital) grow larger. **And your initial small core (1000 principal) remains safely at the center.**
Essence of rolling positions explained:
1. Profitability is the premise: First, you need to be able to make money. If you are losing money, don’t think about 'rolling', that is a 'knife mountain'.
2. Locking in profits is the core action: The money you earn must be confirmed and taken out in time. You cannot let it just be unrealized gains (profits on paper but not sold), and even more so, you cannot let it lose back.
3. Protecting the principal is an iron rule: The initial investment is your lifeline. You absolutely cannot let this money have a risk of loss. All operational risks should only be borne by the profits that have been 'rolled' out.
4. Reinvesting profits is the driving force of 'rolling': Treat the locked-in profits (all or most) as new capital to invest for greater returns. This is why the 'snowball' gets bigger.
5. Position management is a key skill:
When you only have the principal (1000), you may be more cautious and only dare to use a portion of the money (like 500) to buy dumpling materials (equivalent to building a position).
When you have profits (200 new capital), you can use this 200 to buy more materials (equivalent to using profits to increase positions), and even be a bit bolder, because if you lose, you only lose profits, and the principal is safe.
As the 'rolled' money increases, your total operational amount becomes larger (from 1000 to 1200 to 1440), but the essence of the risk you bear is still that profit money (200, then 440), while the principal is always protected.
Benefits of rolling positions:
Amplify returns: Continuously reinvesting profits, there is a chance to earn more.
Protect the principal: Maximize the safety of the initial capital.
Better mindset: Using the money earned to take risks reduces psychological pressure, making operations more relaxed.
Risks and Precautions of Rolling Positions (Very Important!):
1. Profit drawdown: If you increase your position with profits and the market declines, the newly added positions will lose money. Although the principal is safe, it’s still unpleasant to see profits shrink. The key is to have a stop-loss strategy to protect profits!
2. Overconfidence: Seeing profits rolling in can lead to complacency, potentially increasing positions or taking bigger risks, which may result in losses of profits or even the principal. **Maintain discipline!**
3. Not all situations are applicable:
In a one-sided upward market: rolling positions work best, and profits can accumulate quickly.
Volatile markets: You may repeatedly go up and down (earning and losing), rolling efficiency is low, and can even erode profits.
Downward market: Absolutely do not roll positions! Quickly cut losses to preserve the principal.
4. Transaction costs: Every time you sell to lock in profits and then use those profits to buy, there are costs like fees. Frequent operations can eat up quite a bit of profits.
5. Choosing targets: Rolling positions are more suitable for **strong trends and good liquidity** products (like certain stocks, major futures contracts, mainstream cryptocurrencies, etc.). Too small a fluctuation cannot roll, and poor liquidity makes buying and selling difficult.
Simple summary of the rolling process:
1. Invest a sum of money (the principal) and start investing/trading.
2. Made a profit! Reached the preset profit target (for example, a 20% gain).
3. Take immediate action:
Sell the profitable part (or all positions) and take the earned money.
Ensure the safety of the principal (e.g., the corresponding portion of the capital has been recovered).
4. Treat the profits you have (all or most) as new capital and reinvest in the market. (You can buy back the original target or switch to a new one.)
5. Repeat steps 2-4: Make money -> Lock in profits -> Protect the principal -> Profits become new capital -> Invest... Repeat this cycle.
Iron rules of rolling positions:
Your principal is your life, absolutely cannot lose!
The money you earn is the real money (take it safely)!
Use profits to take risks, don’t gamble with the principal!
* If the market is not right (downward trend), immediately stop 'rolling', preserving life is the priority!
Remember, 'rolling positions' is a magnifying glass. It can amplify your profits, but it may also magnify your losses (limited to the profit portion). It’s not a magic method that guarantees profits; the core is whether you can continuously and stably make money. Its greatest value lies in mechanism design, forcing you to protect your principal and use profits for growth, combining risk management with capital growth strategies. It’s essential to understand its principles and risks before operating! The core idea in one sentence: 'Take a portion of the money earned as new capital, like rolling a snowball, getting bigger and bigger, but always protect your old capital.'