To summarize: Rolling is a high-yield strategy, but it also carries significant risks, so caution is advised. A cost-effective strategy is rolling (exponential growth) combined with compounding. Note that rolling is exponential growth, while compounding is a specialized form of exponential growth. While all compounding is exponential growth, not all exponential growth is compounding. Spot trading is a compounding model, while futures trading is more like a linear growth model.

If you are interested, you can follow the official account: Leek Hamburger for daily updates on the latest market conditions.

Now let’s officially start talking about rolling positions.

5,000 yuan of capital, 10x leverage, a 100% increase, and the final profit is 5 million yuan. This is a rolling position.

Adding to a position with floating profits is not rolling a position. Current definitions and methods of rolling positions are simply copied and pasted from sources like Fat House, Bit King, and Tony, making them difficult to understand for beginners with little investment experience. This article aims to provide a simple and accessible explanation.

Assume that the current price of BTC is 10,000, and you open a position of 5,000 with 10x leverage. Now, BTC rises to 11,000, a 10% increase, and your profit is 5,000. Now, the next step is very important.

1. To increase your position based on floating profits, you add another 5,000. Then, BTC rises to 12,000, a 10% increase. At this point, your principal and interest are 25,000. (Principal 5,000 + profit 5,000)

2. The method of rolling position is to close the previous position, including principal and interest of 10,000, and then open a new position. Then BTC rises to 12,000, the same increase of 10%. At this time, your principal and interest are 20,000.

Doesn't it seem like there's much difference? But if you keep repeating this process, when BTC reaches 20,000, the increase is 100%. Adding to your position with floating profits will result in a total of 325,000 (including the 50,000 yuan principal). Rolling your position will result in a total of 5.12 million (including the 5,000 yuan principal).

Why is there such a big gap? Let me analyze it together.

What is a complete position building cycle?

Open a position → Floating profit → Floating profit → Close the position

What is a complete cycle of adding to floating profits?

Open position → Floating profit → Increase position → Floating profit → Close position

What is a complete rolling cycle?

Open a position → Floating profit → Close the position and then open a position → Floating profit → Close the position and exit

Okay, let's expand on two concepts, again using easy-to-understand methods. One is linear growth, which is 10%, 10%, 10%. The other is exponential growth, 10%, 20%, 40%, 80%. Linear growth is like driving a car, where the pace is steady from 10 mph to 20 mph to 80 mph. Exponential growth is like the development of technology, where growth is exponential, starting slowly and accelerating. To illustrate this with a loose example, there's solid evidence that humans 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. In other words, after the mastery of electricity, human technology has advanced rapidly. By comparison, the previous 400,000 years seem like a joke. But that's digressing. Let's get back to the point.

Let's make another analogy here:

Ordinary position building is linear growth. Strictly speaking, contracts are not linear, but let’s use this analogy for the sake of understanding.

Adding to positions based on floating profits means adding to positions based on linear growth.

Rolling is an exponential growth.

Below is a manually calculated chart for you to see more clearly. The 5000 circled is the additional capital for adding to the position due to floating profit.

By now, aren't you thinking, "Wow! So easy! Isn't this the secret to wealth?" However, rolling positions actually requires strict conditions: capital management, stop-loss and take-profit orders, and most importantly, a unilaterally rising bull market. The biggest risk associated with such high returns is a 10-point or greater drawdown, which can wipe out all your investment. However, I personally believe that with proper stop-loss and take-profit strategies, these risks can be managed. If you encounter a major market rally like the one that only happens once every four years, it's a good idea to use it.

In summary: High returns from rolling positions also carry significant risks, so caution is advised. Rolling positions (exponential growth) combined with compounding is the most cost-effective strategy. Note that rolling positions represent exponential growth, while compounding is a special form of exponential growth. While all compounding is exponential growth, not all exponential growth is compounding. Spot trading is a compounding model.

The next article will analyze the application of the rolling position + compound interest model in the futures market, as well as the story of Bit King. Why mention Bit King? Because I personally believe his trading methods are highly representative of the many successful traders who emerged during the last bull market. Ordinary people with small capital rose from 40,000 yuan to 200 million yuan in just over two years. I'm passionate about studying the legendary stories of these people, not for any other reason, nor do I seek to grasp the secret to wealth by emulating them. Their stories are generally unique, but I simply find it fascinating to savor the ups and downs of their lives, like watching a great movie. If I can improve my trading skills and philosophy during this time, it's like killing two birds with one stone—won't that be wonderful?

Updated April 1, 2024

Many people say the increase in the figure is based on a 10,000 yuan increase. Actually, the 10% and 20% increases in the figure can be viewed as periodic increases; they are essentially the same. This is just to make the understanding of compound interest more intuitive and popular. For a detailed explanation, see the figure below.

The above analysis demonstrates that the true meaning of rolling over lies in compounding, and the true meaning of compounding is to fully leverage unrealized profits, or floating gains. The essence of how Bit King, through leverage, grew from 40,000 yuan to 200 million yuan is compounding. Compounding is the only way to make big money with a small capital. Be optimistic, it's the only way! Profits this week, losses the next. This completely unsystematic futures trading approach makes it difficult to even break even, let alone make a fortune.

Second summary: There are three key factors to making big money with a small investment: 1. Compound interest thinking, 2. A bull market, and 3. Correct operation. If all three are met, congratulations! This is the necessary and sufficient condition for making a big profit with a small investment!

Finally, this compound interest approach also applies to spot trading, meaning a 100% annualized rate. For a similar 5,000 yuan principal, six cycles yield 320,000 yuan, and 11 cycles yield 10.24 million yuan. I'll explain this in detail in another article. This approach is much easier to implement.

A single tree cannot make a boat, and a single sail cannot sail far! In Erquan, if you don’t have a good circle and first-hand information about the cryptocurrency circle, then I suggest you pay attention to Mu Qing, who will help you get ashore for free. You are welcome to join the team!!!