Having a good mindset in trading cryptocurrencies is essential; during a sharp drop, do not let your blood pressure soar, and during a sharp rise, do not become complacent. It is crucial to secure profits. When I first started trading cryptocurrencies, I also worried to the point of losing sleep, frequently waking up in the middle of the night; now I am much calmer.
Ultimately, the difficulty in making money lies not in the skills but in practicing my own set of secrets. This alone excludes 70% of people.
In this world, everything can be arranged except for your heart. Losing anyone in this world is not scary; losing yourself is what matters. There is still a long, long road ahead, and you have to walk it alone, relying on your own abilities to complete it. This world will not necessarily reward you for your efforts, nor will it require others to treat you the same way you treat them. The hardest part of living in this world is maintaining a sense of humility and peace, and this humility comes from inner sincerity and solid effort.
You must believe that everyone and everything you encounter in your life has its value and significance. Some people teach you love, some events teach you growth. Even if they only leave a shallow imprint on your path, it is a priceless treasure. At least at some moment in the past, you understood life and yourself. We might as well think this way: Efforts with results are training, while efforts without results are tempering. Regardless, every encounter is an indispensable element in your life.
Without a high win-rate contract trading system and complete fund management, it is very difficult to maintain a good mindset. Don’t tell me you have a good mindset while holding losing trades; I can only say you have reached the highest realm of loss, fooling yourself!
Mindset = Good fund management + Win rate > 30% trading system.
Among the winners in the cryptocurrency contract market, skills are secondary; the core of their trading is fund management, risk control, and trading strategy.
The reason they can make money is that losers do not execute, or do not strictly execute, or do not comprehensively implement fund management, risk control, and trading strategy.
In a standoff between two armies, if technical analysis is the weapon, both sides are certainly evenly matched; however, if one side believes that when two strong forces meet, the brave will win, and recklessly charges into the fray, they will undoubtedly lose. They did not lose in weaponry but in not understanding defense and protection, not understanding combat strategy, and not understanding troop deployment, which in our trading means risk control, trading strategy, and fund management.
If everyone strictly, scientifically, rationally, and comprehensively executes and follows fund management, risk control, and trading strategies, then technical analysis can play a role in influencing the win-lose pattern.
This insight shows that winners only focus on fund management, risk control, and trading strategies, never nitpicking technical analysis. Their requirements for technical analysis are very rough, which is enough to keep them as winners for 10 or 20 years continuously. Because their vision is broad and their understanding is profound, they are incomparable and unmatched by those who merely focus on technical analysis.
Failed traders do not understand what forces influence trading, and they get lost in piles of technical analysis books.
The reason why losers and winners are comparable in technical analysis is also partly determined by the inherent shortcomings of technical analysis itself. For example, in Dow theory trend analysis, the trend can only be confirmed after the market moves 30%, which causes missed opportunities for bottom-fishing and peak-exiting.
Technical analysis is ultimately a probability issue; no matter how good your skills are, you only have a greater chance of winning, typically around 50%-60%. If someone has slightly worse skills, their probability of winning is merely a bit lower, at 40%-50%, which is not significantly different.
For instance, if a trend peaks and moves about 30%, there should not be much disagreement about the peak; some traders with different opinions may say it is near the top. From an overall trend perspective, opinions are basically the same, and the differences can be disregarded, not resulting in a significant gap in wins and losses.
But if you fully invest your entire capital here and go in heavy, problems arise: our traders participate in trends, the large direction can be correctly perceived, but if they go in heavy, they can be shaken out by small, minor adjustments and lose money. A slight lapse in focus can lead to missing the trend, which is very regrettable.
Building positions lightly is not afraid of being wrong, because the loss is minimal. By simply following the trend and not being shaken out or driven away, you can ride the trend down. With small positions dynamically managed, adjusting positions accordingly can lead to significant profits.
The difference in technical levels between both sides is at most 30%. If you think you are highly skilled and enter with a heavy position without executing fund management, while someone with slightly lesser skills may feel inferior and try with a lighter position, their funds are managed.
Finally, you see, those who have been washed out and lost a lot of money are definitely the ones who entered heavily with high skills; while those with slightly lesser skills will follow the trend down, though their profits may not be much. However, they have widened the gap with the heavy investors. After several cycles and a year or two, the difference between them becomes that of a beggar and a millionaire.
So how can we do a good job in fund management? The trading system is the prerequisite for fund management; we need to understand what fund management is. Transitioning from prediction to non-prediction is a hurdle that requires gradual understanding; once you understand it, you will naturally comprehend it. Before understanding, even face-to-face explanations for days or months will yield no results.
A mature trading system should include fund management, and fund management should not exist independently of the trading system. Remember, it should not exist, not cannot. Li Jun personally believes that to accurately understand trading rules, systems, and concepts like fund management.
Start from risk control to achieve fund management. To make it easier for everyone to understand, Li Jun will use the previously discussed moving average trading system and Bollinger Bands for explanation: buy when there is a golden cross, close your long position and sell when there is a death cross.
Assuming the accuracy of a moving average trading system is 30% and the average profit-loss ratio is 7:3, then, without considering trading fees and costs, the entire trading system cannot make money.
How to understand this? For example, if you trade one hundred orders, make money on 30, and lose on 70, with an average profit of seventy thousand on profitable orders and an average loss of thirty thousand on losing orders, then you end up with nothing.
In reality, trading rules and systems established solely based on indicators can mostly only prevent losses.
Hypothetically, if through backtesting long-term historical data the system's maximum loss reaches 80%, then it can be said that this system not only does not make money, but also has a very high risk coefficient. A maximum drawdown of 80% is very terrifying.
How to understand this? If you have one million in funds, and the maximum loss leaves you with only two hundred thousand, even if the final result is that you can earn back to one million, the risk during the process is extremely high, it can be said to be out of control, and encountering a terrifying black swan could lead to a liquidation at any time.
For a system that has high risk and does not make much money, can it not be used at all?
The answer: definitely not.
First, we look at the risk; if the system's maximum drawdown is 80%, can this risk be reduced somewhat?
Of course, if you reduce the position by half, then the overall risk coefficient is also reduced by half, and the maximum drawdown changes to 40%.
Next, what if we reduce the position to 25%? Wouldn’t the maximum drawdown also be reduced to 20%?
When we write 'maximum position controlled within 10%' as a rule in our trading system, we end up with a low-risk system with a maximum drawdown of 10% that does not make money.
Note that this rule of 'maximum position controlled within 10%' is a simple and straightforward rule in a fund management system, primarily used for risk control.
The control of risk in a trading system comes from reasonable fund management.
To digress a bit, everyone knows they cannot operate at full capacity, but most people do not know why they cannot operate at full capacity. The answer lies here.
Fund management magnifies profits.
For us, a low-risk trading system that does not make much money is actually of little use. To emphasize, how can we make this system achieve positive returns and profit?
In practical operations, not changing the opening and closing rules cannot change the 30% accuracy rate. We cannot change the 7 to 3 profit-loss ratio either, although it is frustrating, it is not without solutions. We can change the position; if we can manage to maintain an average position of 10% for profitable trades and control the average position of losing trades around 5%, then wouldn't we achieve profitability?
Fund management plays a role in maximizing profits here. Good fund management can turn a system that originally does not make money into a profitable one, and a system that earns small profits into one that earns large profits.
Exploring the world of digital currency is like understanding the true meaning of life; once you grasp the wisdom of living, the mysteries of the cryptocurrency world will also become clear. The path of simplicity lies in the integration of knowledge and action, only then can you navigate smoothly and confidently!
Keep following me, so you can encounter fewer obstacles and more shortcuts on your journey in the cryptocurrency world. I am the koi fish, focusing on delivering the most valuable cryptocurrency information and insights.
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