In the cryptocurrency market, good position management means you can outperform the vast majority. The theme being shared is the management of trading positions; how positions are managed directly determines your risk level, holding average price, and ultimately your profit size. This can be said to be the most important factor aside from direction and mindset. What is position management? Position management refers to a specific plan set for opening positions, increasing positions, reducing positions, and how to close positions when you decide to trade cryptocurrencies. Good position management is one of our crucial means to avoid risks, allowing us to minimize losses and maximize profits!! How should positions be managed? Is there a standard? Many traders fail because one of the key reasons is that they treat market analysis as the entirety of trading, as if analyzing the market is sufficient to determine victory or defeat. In fact, market analysis is only the most basic work; what truly determines victory or defeat is the work done after market analysis, which are the issues to consider after entering the market. Position management includes capital management and risk control. The two words ‘position management’ should not be interpreted literally; it more so expresses when to increase positions, how much, where to reduce positions, and how much. It serves as a roadmap for 'entering, increasing, reducing, and exiting' the market. Thus, a complete trading process should be: 1. Market analysis, which you can perform using any technical analysis. 2. Position management. After entering, you need to consider possible events that may occur next: What to do with profits? Should you increase your position, or fully take profits and exit, or continue to hold? What if profits increase again? What if you incur losses? Should you stop losses, or hold the positions, or partially exit first? How large of a loss would cause you to exit entirely? Position management will simultaneously consider risk and return factors. 3. Strictly execute trades. Once your plan is clear, you need to implement it without letting market fluctuations disrupt your thinking. 4. Summarize trades. After completing a trade, it is necessary to review the previous period's trades, covering samples that span rising, falling, and oscillating market conditions. Then, based on this, improve and optimize market analysis, position management, and the execution process. We must first find an entry point based on our trading skills, which should definitely be a support line. When the market is above the support line, the trend is upward; when the market breaks below the support line, the trend is downward. More importantly, the support line also serves as a basis for defining potential risks. When the stop-loss is set below this support line, the potential risk magnitude is determined. If the initial stop-loss area below the support line is touched, one should exit or close most of the position, then gradually reduce positions as the market continues to decline until all positions are closed. Thus, the potential profit margin is above the support line, and as long as the market upward trend has not ended, the potential profit is theoretically unlimited. After entering, if the price rises, we can hold the original position to await further gains or reduce and increase positions based on the original position.
We will adjust the stop-loss according to market developments. When the market behaves as we expected, we should move the stop-loss closer to the cost price or below a certain margin of the support line. Moving the stop-loss continuously reduces the risk in the market, which is equivalent to locking in floating profits.
When the price rises again to a new support or resistance level and then starts to fall back, the area below this support or resistance level is where to reduce positions. At this point, we should gradually liquidate all positions. To summarize: First, we need to find a support pressure line at the cost price. When the price rises far from the cost line, we gradually increase our positions, and the increase must be gradual. When the price falls and gradually moves away from the cost line, we gradually reduce our positions, which must also be gradual. Your position management skills must balance risk and reward.
Six basic principles of position management:
First: Do not operate with a full position, always maintain a certain proportion of spare funds:
Second: Buy and sell in batches to reduce risk, dilute costs, and amplify returns. The advantage of buying in batches downwards and selling in batches upwards is that you achieve a lower average price than others, leading to higher returns.
Third: When the market is weak, hold light positions; it is best not to exceed half a position in a bear market.
Fourth: Adjust positions appropriately as market conditions change, increasing or decreasing positions as necessary.
Fifth: During a sluggish market, it is advisable to hold a short-term empty position while waiting for opportunities.
Sixth: Position adjustment: retain strong cryptocurrencies and sell weak ones.
The above 6 principles apply to contracts. If you still don't understand, please read it carefully several times. Reviewing old knowledge can lead to new insights; you can become a master!
Now let's talk about methods of position management, which is batch operations.
Batch operations refer to dividing the invested funds, building positions in batches, increasing or decreasing positions. Batch operations can be completed within a day or over a period of time.
Why do these actions? Because the cryptocurrency market is unpredictable, both rises and falls are highly probable events, and no one can accurately predict short-term price fluctuations. Therefore, it’s essential to leave enough funds to cope with unpredictable fluctuations.
If you take a full position without sufficient certainty, once the market changes contrary to your expectation, it will lead to significant losses. Therefore, using a staggered approach can reduce the risk of total position investment, dilute costs, and is the basis for lowering costs and amplifying returns.
Next, let's talk about how to stagger positions: there are two types: equal shares and unequal shares.
First: Equal distribution, also known as rectangular buying and selling method, refers to dividing funds into several equal parts, buying or selling in sequence, with the same proportion of funds for each buy or sell. Typically, 3 or 4 equal parts are used. For example, first buy 30%, if you start to profit, then buy another 30%; if there is no profit, temporarily refrain from injecting new funds. When the price of the cryptocurrency reaches a certain peak or the market changes, gradually reduce positions and sell.
Second: Unequal distribution, which refers to buying or selling funds in different proportions, such as 1:3:5, 1:2:3:4, or 3:2:3, etc. The shapes generated based on these proportions can be classified into: rhombus, rectangle, hourglass, etc., the commonly used method being the pyramid buying and selling method.
Third: Use equal capital and equal positions to compare different methods.
Pyramid: buy 5 layers at 1000, 3 layers at 1100, 1 layer at 1200, average price 1055.
Inverted pyramid: buy 1 layer at 1000, 3 layers at 1100, 5 layers at 1200, average price 1144.
Equal parts rectangle: buy 3 layers at 1000, 3 layers at 1100, 3 layers at 1200, average price 1100.
When the price rises to 1200, the profits are: pyramid 145, inverted pyramid 56, rectangle 100.
When the price falls to 1000, losses are as follows: pyramid +55, inverted pyramid -144, rectangle -100.
By comparison, the pyramid method has the least cost, resulting in greater profits when prices rise. When prices fall, it bears more risk. The inverted pyramid is exactly the opposite; if the price falls to 1000, the inverted pyramid loses 144. In practice, buying should use the regular pyramid method, while selling should use the inverted pyramid method, which is more reasonable.
After a significant drop in cryptocurrency price, when we see it bottoming but are unsure if it has reached the bottom, buying at this time carries the risk of further declines. If we don't buy, we worry about missing out on a price reversal. In this case, we can adopt a pyramid stacking method.
For example:
When a certain cryptocurrency drops to the 10U position, buy a 20% position; if the price drops to the 8U position, then enter 30%. At this point, the average cost is 8.6U.
If the market continues to drop to 5U, then enter 40%, average is 6.5U.
If the price rebounds to 6.5U, it breaks even. If it rebounds to 10U, it means you made 3.5U. But if you bought in full at 10U, the price returning to ten means you've just broken even.
During the price increase process, the lower the price at which you buy, the larger your position should be. As the price gradually rises, your position should gradually decrease. This method of buying belongs to right-side positioning. This kind of cost is relatively safe; even if the market declines, as long as it does not drop below the holding cost, there is no need to panic.
This method has a heavier initial position, so it requires higher demands for first-time entries and a good grasp of market fluctuations; it is suitable for technical players.
The inverted pyramid selling method is the opposite of the regular pyramid; it has a broader top and narrows downwards, resembling a funnel. In a rising market, gradually decrease the number of coins held, meaning the quantity of sold coins increases as the price rises. This is the method for reducing positions or clearing out.
The core of position management is the above points. Once you understand them, I believe that in the future, whether it is spot trading or contract trading, you will have a clear idea.
If you can see this, then I believe you are definitely a loyal fan of the cryptocurrency circle!
Now let's conduct practical teaching! (The following text will be explained in plain language, as I’m concerned you might not understand the formal terms!)
Spot position management.
Example: If you have 100,000U, then you should divide it into ten parts! Prepare to buy ten cryptocurrencies! Allocate 10,000U to each cryptocurrency! Each entry should involve the same amount of money!
Example: For XX cryptocurrency, build a position with 50% at XX price, and supplement with another 50% at XX price, where 50% means allocating 10,000U for each cryptocurrency, building a position with 5,000U and reserving 5,000U for supplementation.
A major taboo in spot trading is to hold heavy positions on assets you are confident in and light positions on those you are not.
This cryptocurrency is good, so I will buy a bit more, about 30,000U.
This cryptocurrency is average; I will enter and buy 10,000U.
When operating, you should buy the same amount of each cryptocurrency, strictly following the examples given above! If you do not follow this position, then a problem will arise: if the cryptocurrency you bought heavily with 30,000U declines by 10%, that is a loss of 3,000U. Even if the lightly held cryptocurrency worth 10,000U increases by 10%, that is only a profit of 1,000U, and you are still at a loss!
Contract position management.
ETH position allocation, calculated by quantity!
With a capital of 1000U, the maximum position cannot exceed 5.
With a capital of 3000U, the maximum position cannot exceed 10.
With a capital of 5000U, the maximum position cannot exceed 20.
With a capital of 10000U, the maximum position cannot exceed 30.
With a capital of 30000U, the maximum position cannot exceed 50.
With a capital of 50000U, the maximum position cannot exceed 100.
BTC position allocation, calculated by quantity!
With a capital of 1000U, the maximum position cannot exceed 0.5.
With a capital of 3000U, the maximum position cannot exceed 1.
With a capital of 5000U, the maximum position cannot exceed 2.
With a capital of 10000U, the maximum position cannot exceed 3.
With a capital of 30000U, the maximum position cannot exceed 5.
With a capital of 50000U, the maximum position cannot exceed 10.
In fact, each order in a contract has the same initial capital, and the number of orders is the same. This way, you can navigate comfortably in the contract group with K God’s orders! Take profits when needed and cut losses when necessary; treat yourself as a trading machine!
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