The Importance of Risk Control System in Trading: How to Survive in the Market for a Long Time?
In the trading market, if you want to survive for a long time, a risk control system is essential. The author has been in the market for so many years and has come into contact with many fans. Last year, our community did a statistics: among 50 traders who had just entered the market for a month, more than 60% of them lost money; and among 50 traders who had been in the market for a year, more than 80% lost money. This data is very interesting - the longer you stay in the market, the greater the probability of loss. The reason is simple: newcomers do not have such strong subjective biases when they first enter the market, while traders who have been in the market for a longer time often have bad trading habits, which leads to more serious emotional trading and eventually suffer greater losses.
1. Market research
Before entering any market, you must have a clear judgment on the characteristics of the market. Take the crypto (derivatives) market, which the author has been deeply involved in, for example. Its volatility is very large and it is traded 24 hours a day. In addition, some products are affected by multiple factors such as community sentiment, technological development, economic policies, etc. Therefore, we need to pay special attention to risk control and avoid blind operations.
2. Position management and stop-profit and stop-loss control: ensure that risks are controllable and avoid emotional decision-making
In a highly volatile market, reasonable position management and stop-loss control are crucial. Over-expanding positions or ignoring stop-loss can easily lead us to make wrong decisions based on emotions, eventually developing bad trading habits, resulting in huge losses, and even no way back.
Here are some of the author’s trading risk control tips:
Strictly control positions: Generally, short-term trading positions should not exceed 5%, and long-term trading positions should not exceed 15%. If the loss exceeds 15% within a week, you must force yourself to stop trading and exit the market to avoid emotional decisions that further exacerbate losses.
Clear stop-loss and take-profit point settings: Each transaction needs to have clear stop-loss and take-profit points. Once the stop-loss point is set, it must be strictly enforced to avoid further losses due to mental fluctuations. Similarly, when the profit reaches the target, it is necessary to stop the profit in time to avoid profit taking due to greed.
3. Product selection and market sentiment in derivatives trading: accurate judgment to avoid high-risk traps
Product selection is a key link in the risk control system, especially in the crypto market, where there are many varieties. In addition to mainstream currencies such as Bitcoin and Ethereum, there are also a large number of altcoins with low market capitalization and poor liquidity. Each variety has different characteristics, and factors such as volatility, liquidity, and market sentiment require us to make comprehensive judgments when choosing.
Product selection principles: Pay attention to liquidity and market potential: Liquidity is the key to determining whether a currency is suitable for trading. Low-liquidity markets are prone to drastic price fluctuations, and may even experience market manipulation or "flash crashes". Methods for judging liquidity include observing 24-hour trading volume, viewing market depth charts, and paying attention to bid-ask spreads. It is recommended to trade mainstream currencies (such as Bitcoin, Ethereum, Solana, and other top ten products by market value) as much as possible to reduce the risk of encountering black swan events.
4. Macro market sentiment: Avoid unpredictable risks
In addition to product selection, the market's macroeconomic data also has a significant impact on market sentiment. For example, when US economic data is released, market sentiment may be overly sensitive, price changes are difficult to predict, and stop losses may be triggered easily, resulting in significant losses. We should wait and see during these periods and enter the market only after the market sentiment stabilizes. Avoiding trading during these high-risk periods can significantly increase your trading success rate.
5. Analyze market information calmly and avoid noise interference
There are countless news in the crypto circle every day, and we need to calmly analyze the authenticity and impact of this information to avoid being disturbed by market noise. Avoid following the crowd and try to rely on your own analysis and judgment to build a rational trading decision-making system.
Summarize
An effective trading risk control system can help us maintain stable profits in the market and avoid large losses. Through strict position management, reasonable stop-profit and stop-loss settings, emotional management, and keen judgment of the market, we can survive and make profits in the high-risk market for a long time. The most important thing is to stay calm at all times during the transaction, not be swayed by short-term market fluctuations, and maintain rationality and discipline to achieve long-term stable profits.
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