Suddenly realized that losing 300,000 is nothing! I've been trading stocks for 13 years, and in the early years, I lost 70%, going from 1,000,000 to 300,000. After experiencing various pressures, pain, and confusion, I finally had a great awakening. I simplified my trading techniques and achieved continuous stable profits for 6 years. If you plan to stay in the stock market for the next three years and aspire to make stock trading your second career, you must read these 10 iron rules. They are all practical tips for making a living from trading stocks, and I recommend saving them!
1: A common problem among retail investors worldwide is holding on to losses indefinitely. When there's a slight profit, they sell immediately, ignoring trends and trading volume, only looking at account gains and losses. The result is unlimited losses and limited profits. The opposite approach is needed: hold on to profits indefinitely and cut losses as soon as they occur. My profit-taking and stop-loss principle is to take profits at 15% and stop-loss if profits drop to 10%. If it continues to rise, hold on to it and let profits run. If the stock drops after purchase and losses exceed 5% of the principal, then stop-loss. If you can ensure a 10% profit-taking and a 5% stop-loss each time, then after 100 trades, even with a win rate of only 50%, your return will reach 800%. Is it difficult? The difficulty lies in human greed and fear; knowledge and action must be unified.
2: I have always believed that trading volume is a very important indicator. If you learn this, you will outperform 80% of traders. A volume ratio less than 0.5 indicates a clear decrease in volume. If volume decreases while reaching new highs, it means the main force is in complete control, and the possibility of them unloading is eliminated. If it happens to be in an upward channel, the probability of making profits is extremely high. If a stock hits the daily limit and the volume ratio is less than 1, it indicates that there is still significant upward space, and the probability of hitting the daily limit again the next day is very high. If the volume ratio is greater than 1.5 and the stock pulls back after breaking through an important resistance level (like the 20-day moving average), it becomes a rare buying opportunity.
3: It's best to hold onto 2 to 3 stocks. The pain point for retail investors is that they are reluctant to go to cash and are eager to average down during weak markets. With limited capital but many stocks, they fall into a mindset of luck. If you hold more than 5 stocks, most of which are losing, the first thing you need to do is reduce the number of stocks held. Prioritize selling those that break the trend (like falling below the 20-day moving average). I have never held more than 4 stocks, even in a bull market.
4: Don't rush to cut losses after a big drop in the morning; there is usually a rebound in the afternoon. If there is a big rise at the close, reduce your position, as the probability of a pullback the next day is high. If there's a volume decrease during an uptrend, it will continue to rise. If there's a volume decrease during a downtrend, it will continue to fall. A volume increase with stagnation indicates a top has emerged. A volume decrease halting the decline indicates a bottom has formed. A huge volume surge will inevitably lead to a pullback. This is a golden rule with a success rate of up to 85%.
5: The trend is king; go with the trend. Once a trend is formed, no need for excessive analysis; just follow it. Follow the money, do not guess, predict, or assume. If you cannot judge the trend, look at the moving averages. The so-called moving average divides the market into bullish and bearish. Bullish means upward, bearish means downward. For short-term, look at the 5-day moving average; if it breaks out with volume, follow in. For medium to long-term trends, look at the 20-day moving average; if it breaks out with volume, enter; if it breaks down, exit.
6: Buy on divergence, sell on consensus. Divergence creates a premium. This saying is classic; my understanding is that when a strong stock shows divergence, it is a buying opportunity. Divergence is shown by stocks breaking limits and increasing volume, indicating significant divergence between bulls and bears. After divergence occurs, the stock will continue to rise. When all investors believe it will continue to rise, that's the selling point. Here I summarize several key points for making a first-day reversal:
1. Must be a stock with consecutive limits, must have sufficient popularity, and must attract market attention.
2. The first-day drop must be sharp, and there must be sufficient market divergence; the market expectation for it to reverse should not be too high.
3. The sharp drop on the first day must meet two conditions: a. Sufficient turnover b. The chips must be concentrated at a relatively low point on the drop day, otherwise, there will be consistent selling pressure when it rebounds to a high position the next day.
4. If a huge drop occurs, the next day should show an opening that exceeds expectations, either flat or high.
5. Starting from the first drop day, the adjustment should not exceed 3 trading days; otherwise, the popularity will gradually dissipate.
If all five conditions are met, the success rate of the stock's reversal will be significantly higher.
7: After making a big profit, learn to go to cash. Retail investors often become arrogant after a big win. However, overconfidence leads to failure. Get ready and prepare for the next battle. There are time cycles for commodities; after a big win, one tends to forget the value of time. Once a person succeeds, their confidence increases. Continuous success leads to overwhelming confidence, and they become 100% certain of their judgments. When they favor a stock, they buy immediately. If they make a mistake and incur a small loss, it doesn't significantly affect their confidence. Only when faced with a large loss does their confidence drop sharply. When confidence declines, actions become easily misguided! Don't try to seize every opportunity in each sector; those who chase two rabbits will catch neither!
8: The more unfavorable the trading conditions are, the more calm you must remain. The difficult path is not one that everyone is qualified to walk. Only those who can endure the pain of rebirth deserve the beauty of rebirth. The stock market is just like this; when profit effects appear, making money is easy. When loss effects appear, losing money is also easy. The key point lies in the courage to act and the ability to stop at the right time.
9: Why did I choose to trade? I was born into poverty and cannot afford to be in a state of despair. The unknown future is not scary; what is scary is a life that is foreseeable and full of suffering. My painful trading experiences are stepping stones to achieving financial freedom. The threshold for trading is very high; it can look down upon all professions.
10: In the stock market, profit represents our understanding. Trading stocks is both simple and difficult; the difficulty lies in continuous learning and the unity of knowledge and action. Successful stock traders are always in the minority, so an individual's success in trading is built on the failures and sufferings of many fellow traders. The saying goes, 'One general's success is built on the bones of countless soldiers.' Therefore, when we succeed, we must remember to do some meaningful things for society! Society becomes better because of our mutual assistance, great community effects, and small family support.
It's still the same saying.
Shendan is still laying out every day!
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