Trading Misconceptions

Many people have a lot of misconceptions about trading. For example, they think that small capital should be used for short-term trading to grow their funds. This is completely misguided. This kind of thinking is just trying to trade time for space, attempting to get rich overnight. Rather, small capital should focus on medium to long-term strategies for substantial growth.

Is a piece of paper thin enough? If you fold a piece of paper 27 times, it becomes 13 kilometers thick. If you fold it 10 more times, it reaches a thickness that the Earth cannot accommodate... If you fold it 105 times, the entire universe wouldn't be able to contain it.

If you have 30,000 in capital, you should think about how to triple it in one wave, then triple it again in the next wave... That way, you can have four to five hundred thousand. Instead of thinking about making 10% today and 20% tomorrow... this way, you will eventually ruin yourself.

Always remember, the smaller the capital, the more you should focus on long-term strategies. Use compounding to grow your capital rather than engaging in short-term trading for small profits. I often see a saying:

My liquidation price is XXX, I’m not worried, I’m using 2x leverage, my liquidation price is XX, I’m not concerned.

What happened when faced with market conditions like 312 or 519? Gone, right?

Why mention the liquidation price? Is the bottom line of trading just to avoid liquidation? The real bottom line in trading should be not to lose money, not just to avoid liquidation. The future is unpredictable; it’s all just a matter of probability. If liquidation happens, wouldn’t that mean you've lost everything?

Trading should involve using small stop losses to bet on large market movements, rather than just opening a position and holding on until the liquidation price, hoping it won’t reach that point.

A small probability does not mean a probability of zero; otherwise, you would have lost everything in market scenarios like 312, regardless of the leverage.

Perhaps you can be right 9 out of 10 times, but if you get it wrong just once, you lose everything. This kind of risk management based on liquidation as a bottom line is meaningless. The correct approach should be to use small stop losses or to ensure you don’t lose money as your bottom line.

Many people hold these incorrect beliefs probably because they frequently get stopped out with too small a stop loss in choppy markets, which is very frustrating. Then they simply decide not to set stop losses at all and discover that most of the time, they can ride it back.

The issue of frequently getting stopped out can be resolved with the right mindset, rather than just going all-in and setting a far-off liquidation price and ignoring it altogether.

I can write such things and understand the reasons why most people make mistakes because I have been through it myself. Additionally, I am good at observing human nature and summarizing insights. Click on my profile picture to find me anytime.