First summary: Rolling over is a high-yield operation, but it also comes with extremely high risks, so it must be done with caution. The strategy of rolling over (exponential growth) + compound interest model is the most cost-effective strategy. Note that rolling over is exponential growth, while compound interest is a special case of exponential growth, meaning all compound interest is exponential growth, but not all exponential growth is compound interest. Spot trading is the compound interest model, while futures are more like a linear growth model. In summary, effective utilization (unrealized profits) is the core of rolling over and compound interest!
Now let's officially start discussing rolling over.
With a capital of 5000 and 10x leverage, a 100% increase results in a profit of 5 million, which is rolling over the position.
Adding position with floating profit is not the same as rolling over. Because the definitions and methods of rolling over in the market are all directly copied from the views of Fatty, Bitcoin King, and Tony, which are not straightforward enough for novices without much investment experience. This article aims to explain in a simple and straightforward manner.
Assuming BTC is currently priced at 10000, with a position of 5000 and 10x leverage. At this point, BTC rises to 11000, an increase of 10%, and you make a profit of 5000. Okay, the next operation is very important.
1. The method of adding position with floating profit is to add another 5000, and then BTC rises to 12000, increasing by another 10%, at this point your total including capital and profit is 25,000. (Capital two 5000 + profit three 5000)
2. The method of rolling over is to close the previous position, with a total of 10,000 including capital and profit, then reopen the position. Subsequently, BTC rises to 12000, with the same 10% increase, at this point your total including capital and profit is 20,000.
Looking at it this way, isn’t there much difference? But as long as you keep operating in cycles, when BTC rises to 20000, the increase is 100%. The floating profit plus the added position will total 325,000 (including the 50,000 capital). Rolling over the position will total 5.12 million (including the 5,000 capital).
Why is there such a big difference? Let's analyze it together.
What is a complete position opening cycle?
Open position → floating profit → floating profit → close position to exit
What is a complete floating profit adding position cycle?
Open position → floating profit → add position → floating profit → close position to exit
What is a complete rolling over cycle?
Open position → floating profit → close position and reopen → floating profit → close position to exit
Okay, here I will extend two concepts, also using a simple and understandable way. One is linear growth, which is an increase of 10%, 10%, 10%. The other is exponential growth, which increases by 10%, 20%, 40%, 80%. Linear growth is like pressing the gas pedal in a car, accelerating smoothly from 10 mph to 20 mph to 80 mph. Exponential growth, on the other hand, is like technological advancement, which grows exponentially, starting slowly but accelerating faster. Here’s a rough example for understanding: based on solid evidence, humans fully mastered fire 400,000 years ago, electricity 200 years ago, cars about 100 years ago, the internet 55 years ago, and mobile internet 30 years ago. This means that after electricity was mastered, human technology developed rapidly. Comparing the previous 400,000 years to that is like child’s play. I digress, back to the point.
Let's make an analogy here:
Ordinary position opening is linear growth; strictly speaking, contracts are not considered linear, but for the sake of understanding, let's compare this way.
Adding position with floating profit is based on linear growth with additional positions.
Rolling over is exponential growth that multiplies.
Here is a manually calculated chart for a more intuitive look. The circled 5000s represent the additional capital added from floating profits.
At this point, does everyone think, wow! It's so simple! Isn't this the wealth code? But in reality, the operation of rolling over has a set of strict essential conditions: capital management, profit-taking and stop-loss, and the most important prerequisite -- a bull market with unilateral upward movement. The biggest risk behind this high yield is that if there’s a retracement of over 10%, you will lose all your capital. However, I personally believe that through reasonable stop-loss and profit-taking methods, it can still be controlled. If you really encounter such a major market event that happens once every four years, it can be utilized.
Summary: The high yield of rolling over also comes with extremely high risks, so caution is essential. The strategy of rolling over (exponential growth) + compound interest model is a highly cost-effective strategy. Note that rolling over is exponential growth, while compound interest is a special case of exponential growth, meaning all compound interest is exponential growth, but not all exponential growth is compound interest.
In the next article, I will analyze the application of rolling over + compound interest model in the futures market. I personally believe that among the various experts who broke out in the last bull market, their operation methods are highly representative. Ordinary people with small capital making a comeback, in just over two years, from 40,000 to 200 million. I am keen on researching the legendary stories of these people, not to imitate them to grasp any wealth codes, usually their deeds are not replicable; I simply find it particularly interesting to savor the ups and downs of their lives, like watching a good movie. If during this process I can improve my trading skills and concepts, it would be killing two birds with one stone, wouldn’t that be wonderful!
Many friends say that the increase shown in the graph is based on 10,000, but you can think of the 10% and 20% in the graph as phase increases, which are essentially the same. It’s just for a more intuitive and straightforward understanding of compound interest; if you want to see details, refer to the chart below.
The analysis above shows that the true meaning of rolling over lies in compound interest, and the true meaning of compound interest is to fully mobilize unrealized profits, which is the floating profit part. Some people leverage from 40,000 to make 200 million, which is essentially compound interest thinking. Compound interest thinking is the only possibility for making big money with small capital, mark my words, it is the only one! This week you might make a few waves, next week lose a few waves; doing futures trading without any rules, don’t even think about making big money, even preserving your capital is very difficult.
Summary: There are 3 points to make big money with small capital: 1. Compound interest thinking. 2. Bull market conditions. 3. Correct operation. If all three points are met, congratulations, this is a sufficient and necessary condition for making big money with small capital!
Finally, this compound interest thinking also applies to spot trading, which has a 100% annualized rate. With the same 5000 capital, 6 cycles yield 320,000. 11 cycles yield 10.24 million, specifics are in another article of mine. The actual implementation is much easier.
