Let me talk about myself. Why trade cryptocurrencies? Trading cryptocurrencies has a much lower threshold compared to funds and the risks are extremely high, but the returns are proportional to the risk. I believe many people are willing to invest in cryptocurrencies rather than buy funds. Currently, the cryptocurrency market is completely legal abroad and is slowly being recognized by the government domestically. Before it becomes mainstream, now is the best time to enter the cryptocurrency market. When I entered the cryptocurrency market ten years ago, no one mentioned that you should learn first, so I made many mistakes. Now I have achieved relatively good results in the cryptocurrency market and can at least support my family through full-time trading. I have also achieved financial freedom.
Now let's talk about the differences between trading cryptocurrencies and buying funds:
Trading cryptocurrencies and buying funds each have their pros and cons. It's not simply a matter of whether trading cryptocurrencies or buying funds is bad; rather, it should be considered comprehensively based on individual risk tolerance, investment goals, financial situation, and other factors. Here is an analysis of trading cryptocurrencies and buying funds:
Risks of trading cryptocurrencies
Price volatility: Trading cryptocurrencies involves virtual currencies, which have extremely high price volatility, potentially experiencing significant rises and falls in a short period, posing great risks to investors.
Regulatory risks: Many countries have unclear regulatory attitudes towards virtual currencies, and policy changes can lead to severe market fluctuations, even causing assets to lose all value overnight.
Technical risks: Virtual currencies rely on complex technical foundations such as blockchain, encryption algorithms, etc. These technologies may have vulnerabilities in practical applications, leading to risks such as hacker attacks.
Personal risk: Trading cryptocurrencies requires investors to have certain technical knowledge and market analysis abilities; otherwise, they are easily influenced by market sentiment and may make wrong decisions.
Risks of buying funds
Market risks: The stocks, bonds, and other markets that funds invest in are affected by various factors including macroeconomic conditions and policy changes, which pose market risks.
Management risk: Funds are managed by professional fund managers, and the investment decisions and management abilities of the fund managers will affect the fund's performance.
Liquidity risk: Some funds may have poor liquidity, making it difficult for investors to quickly redeem their investments when they need funds.
Suitable groups
Trading cryptocurrencies: Suitable for investors with certain investment experience, a higher risk tolerance, and a deep understanding of the virtual currency market.
Buying funds: Suitable for investors with a lower risk tolerance who wish to obtain stable returns and do not possess professional investment knowledge.
In summary, trading cryptocurrencies and buying funds each have their advantages and disadvantages. Investors should consider their actual situation and needs when making a choice. Additionally, regardless of which investment method is chosen, it is essential to fully understand the related risks and make cautious decisions.
In entering the cryptocurrency market, you must learn position management, which is the most important.
How to effectively manage positions
Position management is a key strategy in investing, aimed at helping investors reduce losses and seize opportunities amid market fluctuations. Here are several effective position management strategies:
1. Buy in batches, gradually increasing the position
Characteristics: Avoid investing all funds at once; instead, buy in batches. For example, if you are optimistic about a stock, invest 30% first, and then invest the remaining 70% after the stock price rises.
Advantages: Even if the initial judgment is incorrect, losses can be minimized.
2. Take profit and stop loss, strictly execute
Characteristics: Set stop loss and take profit points, such as selling when losing 10% or taking profit when gaining 20%.
Advantages: Avoid emotional trading and ensure investment discipline.
3. Diversify investments, avoid concentration
Characteristics: Do not invest all funds into one stock or one field; diversifying investments can reduce risks.
Advantages: Even if a certain part incurs losses, it won't greatly affect the overall asset.
4. Funnel-type position management
Characteristics: Initially invest less, gradually increase the position as the market rises. Suitable for those confident in market trends but who want to control risks.
Example: If you are optimistic about a certain stock, first invest 20% to build the position. When the stock price rises by 10%, invest 30%. If the stock price continues to rise, invest 50%.
5. Rectangle position management
Characteristics: Invest a fixed proportion of funds each time. Suitable for those who want to maintain a stable investment rhythm.
Example: Invest 20% of the funds each time, regardless of whether the market rises or falls.
6. Pyramid-type position management
Characteristics: Initially invest the most, gradually reduce the position later. Suitable for those with strong judgment of market trends.
Example: First invest 50% to build the position. After the stock price rises, invest 30%. Finally, invest 20% to lock in profits.
7. One-third position management method
Characteristics: Successful trading goes through the four leading stages of 'random trading', 'technical trading', 'strategic trading', and 'fully strategic trading'.
Example: Open the first position with one-third of the total, with subjective components, provided that the market is in a bullish trend and at a breakout volume point, with intraday trends coordinated.
Position management is very important. It even determines to a certain extent whether one can survive continuously in the market.
After all, the entire trading market operates probabilistically. Since there is a probability, there will be wins and losses. Even if our win rate exceeds 80%, if the position is not well controlled, there is still a chance to return to square one.
Therefore, controlling positions is crucial.
Position control is the key to opening the door to trading.
So how should we control positions?
1. A simple and easy-to-understand method of dividing funds into batches.
For example, you can divide your total funds into five or ten parts, and invest one part each time.
For instance, if you have 100,000 in funds, divide it into five parts, investing 20,000 each time; if divided into ten parts, then invest 10,000 each time.
This method is simple to learn and can relatively well control risks, but the downside is that it may result in low capital utilization. However, if there are no other position control strategies, choosing this is far better than having no position control at all.
2. Use a trading volume formula to determine the position size. The formula is as follows.
Number of shares to open = Total funds * single trade risk rate / (buying price - stop loss price)
Now let's explain this formula in detail.
The number of shares to open refers to how many stocks we can buy.
Total funds refer to the total funds we can use, such as 100,000.
Single trade risk rate refers to how much risk we are willing to take each time we buy stocks. For instance, if we are only willing to lose 2%, then this single trade risk rate is 2%.
What kind of position is considered reasonable? Here are a few points for reference:
Determine position size based on funds. In general, regardless of the size of the funds, there is a position control issue. However, comparatively, investors with larger amounts of capital should treat position control as a top priority. Generally, investors with large amounts of capital should avoid heavy positions, especially not being fully invested, and should not stay fully invested for long periods. Investors with less capital can take heavier positions within their risk tolerance.
Determine position size based on market points. When determining position size, another important criterion is the market's point level. Generally speaking, when the market has risen significantly and is at a relatively high level, one should reduce positions and lighten the load; the higher the market goes, the lower the position should be; conversely, at relatively low market levels, one should increase positions and take heavier positions, adding weight as the market declines. 'Do not sell when it doesn't rise, sell a little when it rises slightly, sell a lot when it rises significantly; do not buy when it doesn't fall, buy a little when it falls slightly, buy a lot when it falls significantly' conveys this principle.
Determine position size based on stock prices. In addition to the above two points, the price of the target stock should also be considered when determining position size. For stocks that you are optimistic about, assuming there is no change in fundamentals, one should adopt a strategy of lighter positions when the price is high, heavier positions when the price is low, selling more as it rises, and buying more as it falls, rather than following the crowd and making frequent impulsive trades.
Why control positions?
1. The premise of studying position management is to have a fixed type or types of market participation model! Otherwise, it loses the meaning of position management. This is akin to studying plant spacing for crops; you cannot plant peanuts one year, soybeans the next, and corn the year after. This approach will never yield results.
2. Market uncertainty always exists and will always exist; any attempt to figure out the future market trend before considering how to trade is nonsense.
123 rule to control positions:
First, you need to be familiar with the 123 rule, dividing the total position into three parts, which can be done using an averaging method or pyramid method. A complete addition generally occurs 2-3 times, with losses not exceeding ten percent; similarly, when exiting, it is also two to three times, with each time being one-third.
I have integrated the '123 rule' into position management, making it into a graphic, placed at the end of the article. Grasping the timing of operations will yield good returns, and it's worth studying repeatedly.
Three types of position management methods
01. First, the rectangle position management method.
This method refers to dividing all positions equally; each position has the same amount of money. Common position ratios include thirds, fifths, or even tenths.
This method is more suitable for volatile markets. If we cannot determine whether the future market will be in a rising or falling trend, we might as well use this fixed-amount, phased approach to gradually spread the risk.
02. Secondly, the funnel-type position management method, also known as the inverted pyramid management method.
As shown in the figure, this method divides the position from bottom to top into 5 parts: 10%, 15%, 20%, 25%, and 30%.
When is this method more appropriate to use? If we judge that the future market will maintain a downward trend for a long time, then this method may be worth trying.
In the early stages of a market downturn, we use this method to enter because the initial amount of funds is relatively small and will reserve sufficient chips for subsequent additions.
For example, if the net value of fund A is currently 1.2 yuan, we will set the addition amount at 1,000 yuan when it falls by 10%. When the net value drops by 20% to 0.96 yuan, we will add 2,000 yuan. If the market continues to decline, we will continue to add 3,000 yuan until the net value shows an increase.
In summary, this method is suitable for left-side trading; simply put, it is the process of bottom fishing, aiming to capture potential future main upswings.
It is important to note that since we do not know when the true bottom will arrive, we must ensure that each time we add funds, the intervals cannot be too close. Otherwise, we may exhaust our ammunition before the market bottom has arrived. The key to this addition method is to manage subsequent funds well.
03. The last method is the pyramid position management method.
This method is the exact opposite of the above content. It emphasizes a larger initial capital investment, gradually reducing the addition ratio as the market rises.
This method is also called right-side trading and involves entering when an upward trend has already formed, acting in accordance with the trend to gain profits, suitable for use when the market is performing well.
For instance, when a bull market starts, we need to use ample chips to solidify our foundation, while the subsequent additions of 30% or 20% are done cautiously.
These days I am preparing for the launch of a strategic layout!!!
Comment 8, let's get on!!!
Impermanence brings impermanence brings impermanence!!!
Important things must be said three times!!!
