First, heavy positions lead to certain death; second, no stop-loss leads to certain death; third, greed leads to certain death; fourth, blind entry leads to certain death; fifth, frequent operations lead to certain death; sixth, left-side trading leads to certain death.
These experiences can only be understood after enduring multiple painful lessons.
Unfortunately, retail investors have short memories, suffering large losses each time because of this. Are you also paying for the same mistakes? Each loss is a profound lesson, but why do most traders still struggle to avoid repeating the same mistakes?
First, heavy positions lead to certain death; the cost of greed. Heavy position trading is one of the easiest mistakes for traders to make. When you invest a large amount of capital into one trade, you are essentially replacing rational decision-making with a gambler's mindset. Every trade carries risks due to market volatility, and heavy positions only amplify this risk, leading to unbearable potential losses. Heavy position trading often results in a broken capital chain, or even complete exit from the market. The unpredictability of the market means you can never guarantee that each heavy position will be profitable. It is advisable to diversify investments and strictly control the risk exposure of each trade, keeping the risk of each trade between 1% and 2%, ensuring that even if losses occur, they will not have a devastating impact on the overall capital.
Secondly, no stop-loss means certain death; the tomb of luck. Trading without a stop-loss is the second biggest trap for traders. A lack of a stop-loss plan means you cannot effectively control risk and will ultimately be passively beaten in market fluctuations. Trading without a stop-loss will prevent you from exiting in a timely manner during losses, leading to an ever-expanding loss amount, potentially resulting in total loss. It is advisable to clearly set stop-loss points before each trade and strictly enforce them. A stop-loss is not admitting defeat but a basic respect for market risk.
Thirdly, greed leads to certain death; the trap of desire. Greed is one of human weaknesses; traders often try to earn unrealistic profits and ignore the potential risks of the market. Excessive pursuit of profit may make you hesitant when in profit, ultimately missing the best exit opportunity and even leading to profit reversal. It is advisable to set reasonable profit targets and exit promptly upon reaching them. Remember, trading is not charity; your goal is steady profits, not getting rich overnight.
Fourth, blind entry leads to certain death; the risk of ignorance. Blind entry is a manifestation of lacking a trading plan. Without clear entry logic, it is merely gambling, not trading. Blind entry can cause you to lose direction in the market, ultimately leading to the abyss of losses. It is advisable to develop a detailed trading plan before entering, including entry points, stop-loss points, take-profit points, and risk-reward ratios. Only with a clear plan can you enter the market with confidence.
Fifth, frequent operations lead to certain death; the lack of patience. Frequent operations are a manifestation of traders' eagerness for quick success. Overtrading not only increases trading costs but also raises the probability of making mistakes. Frequent operations can exhaust you in the market, ultimately leading to mistakes due to fatigue and emotional fluctuations.
Sixth, left-side trading leads to certain death; the error of timing. Left-side trading refers to forcefully entering the market when the trend is unclear. This behavior often leads you into the mire of losses. Left-side trading will subject you to enormous risks during market fluctuations, ultimately resulting in losses due to misjudgment. It is advisable to wait until the market trend is clear before entering. Right-side trading may miss some profits but can effectively reduce risk.
In the trading market, many people are superstitious about 'frequent trading' and 'daily compounding', believing it to be a shortcut for small funds to grow quickly. However, the truth is: frequent trading not only won't make you rich but will instead lead you into a pit. Today, we will reveal the deadly traps of frequent trading from multiple angles, such as mathematical probability, cognitive dimensions, and market structure, and tell you the real core of making small funds big—pattern and cognition.
The Mathematical Trap of Frequent Trading: Why Are You Doomed to Lose?
1. The 'Invisible Killer' of Trading Costs
Assuming the cost of a single trade is 0.5% (including commission and slippage), if you trade 5 times a day, the annual trading cost will be as high as 625%! This means that even if your win rate is high, frequent trading will cause your funds to be consumed by costs.
2. The Harsh Truth of Win Rates
Even if you have a 60% win rate, what is the expected return of 100 trades? The calculation is as follows:
(60 winning trades x 1% - 40 losing trades x 1%) - 100 trades x 0.5% = -0.3%. This means that the ultimate result of frequent trading is likely to be a loss.
3. Warnings of the Kelly Formula
The Kelly Formula tells us that when trading frequency exceeds the optimal betting frequency, the fund curve will show exponential decay. Frequent trading is like walking a tightrope on a cliff; a slight misstep can lead to a fall into the abyss.
II. Cognitive Dimensional Reduction: Frequent Trading Reduces You to 'Market Chives'
. The Trap of Time Frames
Research shows that noise accounts for as much as 92% in 5-minute candlestick charts, while the noise in daily charts is only 37%. Frequent traders are often confused by short-term fluctuations, ignoring the real trend.
The Collapse of Decision Quality: The 'Miller's Law' in psychology states that the effective decision-making limit of the human brain per day is 7 plus or minus 2 times. Frequent trading leads to a cliff-like drop in decision quality, ultimately reducing you to emotional trading.
3. The Huge Waste of Opportunity Cost
Frequent traders spend 90% of their time capturing 10% of low-quality volatility, yet miss out on the real big trends. This 'picking sesame seeds and dropping watermelons' behavior is destined to prevent a qualitative change in funds.
The Truth of Market Structure: Why Are You Always a Loser?
1. The Harsh Reality of Liquidity Layering!
Top institutions can access T+0 arbitrage opportunities, while retail investors can only trade secondary liquidity. In this unequal game, frequent traders are destined to be at a disadvantage.
2. The Secret of Volatility
Taking the S&P 500+ as an example, data from the past decade shows that over 70% of annual gains are often concentrated in 7-10 trading days. Frequent traders are likely to miss these key opportunities.
3. The Dilemma of Negative-Sum Games
High-frequency trading is essentially a negative-sum game; the more participants there are, the closer the expected return approaches zero. Frequent traders are like gamblers constantly betting in a casino, ultimately losing all their chips.
IV. The Winning Path of Top Traders: Pattern and Cognition
1. Opportunity Filter+: Only Capture Top Opportunities
Top traders establish a three-dimensional evaluation system (trend strength, volatility quality, risk premium) and only choose the highest quality opportunities to write about.
2. Concentrate Efforts at Key Points
Treat funds as probability waves! Release them only at critical points of momentum. This 'crocodile-style' waiting philosophy can lead to exponential growth of funds.
3. Cognitive Arbitrage: Utilizing the Collective Misjudgment of the Market
True excess returns stem from cognitive differences. For example, the negative price event of crude oil futures in April 2020 is a typical case of collective market misjudgment. Top traders excel at capturing these macro misalignment opportunities.
V. The Path from Small Funds to Large Funds
1. From 'Operation Addiction' to 'Strategic Patience'
The essence of trading is the realization of cognition, not the accumulation of operations. When you learn to patiently wait and only seize key opportunities, fund growth will naturally follow.
2. Constructing a 'Significant Event Impact Model' requires three months to record and validate the impact intensity of 10 fundamental turning points on asset prices. This training can elevate your opportunity recognition ability to a new dimension.
3. The Core of Making Small Funds Big Is Not Frequent Trading, But a Profound Understanding of Market Essence. Only by enhancing cognition can you remain undefeated in trading.
Conclusion:
Frequent trading is a path destined for failure, while true successful individuals often possess a pattern and cognition that surpass ordinary people. As Soros said in (Financial Alchemy): 'True excess returns arise from cognitive differences, not trading frequency.'
I hope this article helps you escape the trap of frequent trading and find your own path in trading. Remember, trading is not gambling, but a battle of cognition. Only by continuously improving yourself can you remain undefeated in the market.
V God has traversed the market for many years, deeply aware of its opportunities and pitfalls. If your investments are not going well and you feel reluctant about losses, leave a comment with 999⑤ often waiting!!