The essence of trading is to improve position tolerance - allowing the account to 'live longer' amidst volatility. 99% of retail investors lose because they fall into two extremes: they can't hold onto winning positions and stubbornly hold onto losing ones.
The fatal misconception of retail investors: emotional trading
Most people act like 'gamblers': they run away after making small profits, fearing profit retracement; they stubbornly hold onto large losses, fantasizing about a rebound. For instance, selling after 'metaverse concept stocks' hit the limit down, only to see a 20% rebound in a week;
New futures traders always want to 'get rich in one day', missing out on the BTC rise from 30,000 to 35,000. The core issue is emotional trading: greed makes you run away with small profits, fear makes you stubbornly hold onto large losses.
The core of a scientific trading system: stop-loss + position + hedging
Those who achieve stable profits rely on 'foolish methods':
1. Stop-loss point = technical level, first set a stop-loss then determine the position
Stop-loss is not simply 'cutting losses at 5%', but is based on daily support/resistance levels. For example, when going long on BTC, set the stop-loss at 28,000 (below the support level), and exit if it breaks.
Adjust position based on stop-loss space: if the support level is close (like 30,000), the position can be heavy; if the support level is far (like 25,000), the position should be light.
2. Use light positions to experiment and hedge risks
Retail investors always want to 'go all in', but experts only use 30% of their funds to experiment. For example, with a capital of 800, first invest 240 to go long on ETH, losing 5% means losing only 72 (30%), which does not affect the capital.
A smarter approach is 'hedging': going long on BTC while simultaneously going short on ETH to hedge against market fluctuations.
3. Probability thinking replaces 'gambling mentality'
The Kelly formula proves: with a win rate of 55% and a win/loss ratio of 2:1 for each trade, one will win in the long run. However, retail investors often neglect probabilities due to 'overconfidence' - a certain stock trader heavily invested in a delisted stock, averaging down from 8 to 1, ultimately losing everything.
The correct approach is to acknowledge that the market is unpredictable, replacing 'precise mistakes' with 'vague correctness'.
Case study: the transition from 'emotional' to 'systematic'
I once guided a fan who lost 80% of their capital due to 'frequent cutting losses'. Later, he strictly adhered to: only trading daily breakouts (e.g., entering when BTC breaks 30,000); keeping position size no more than 30%, setting stop-loss at 5%; taking profit at 20% and cutting losses at 5%.
The market is not lacking opportunities, but stability. Retail investors always want to 'get rich overnight', but overlook the power of 'compound interest'. True trading experts all use 'foolish methods': first, protect life; then, make money; first, control positions; then, profit.
