Survival rules in the trading world: risk control and discipline reconstruction (a must-read for both new and old investors)
Learn to respect risks
➢90% of people will lose! If you want to win, you have to work harder and endure more anti-human rules;
➢(Ghost's Gift): "Trading is a loser's game. Those who are best at losing will eventually win.";
➢When you start a trade, don't think of it as your last trade! Throwing all your chips at one bet is a gambler's behavior; ➢You should spread your chips to ensure that you have the ability to make many trades;
➢The smaller the loss, the better; the sooner you admit your loss, the better;
In the VIP rooms of Macau casinos, there is always a legend that "a big shot won 30 million in one night", but no one will tell you that the gilded chandelier hanging from the casino dome was cast with the belongings of countless gamblers. The same is true in the financial market - behind those thrilling myths of getting rich quickly, there are more unknown stories of liquidation.
Case: Dogecoin Carnival in 2021
When Musk was calling for orders on Twitter, American college student Jack used his credit card to cash out $20,000 and rushed into the market with 50 times leverage. Three days later, his account rose to $250,000, and he celebrated on TikTok live. Two weeks later, the price of the currency plummeted 67%, and when the liquidation text message rang, he was in class revising his application for withdrawal.
Data truth:
According to statistics from the National Futures Association, the three-year survival rate of retail traders is only 7.8%;
China Securities Association report: The average annualized return of A-share investors in the past five years was -5.3%;
Chainalysis data from cryptocurrency exchanges: 92% of leveraged contract traders eventually exit with losses;
The survivor bias trap makes you see "man-made myths"
When you see screenshots of transactions such as "100,000 turns into 10 million" on Douyin, it is like seeing the profiles of "high-quality men and women" in a blind date corner - what is displayed is always the perfect version after refinement.
Market God-making Assembly Line:
Survivor screening: Among 1,000 real accounts, there is always 1 that randomly obtains super high returns;
Traffic boost: platform algorithms automatically promote "amazing performance" to attract attention;
The packaging of words: "Secrets of tactics" is actually a probability game, and "Teacher who leads orders" is actually a reverse indicator;
Survivors transformed: those who lost money quietly withdrew, and the lucky ones began to sell courses and recruit students;
You must know that this market is full of countless risks, and you must respect risks. In each bull market, most of the newcomers to this industry rush into the market because they hear other people's myths of getting rich overnight, who has increased their money 100 times, and who has changed their lives.
So many people are making money, who is losing money? If you have never thought about this question, you will understand that others are making money because I am losing money.
90% of people will lose money, but they won’t tell you! And they won’t be the focus of news. What everyone sees is someone’s sudden wealth myth, which has increased by multiples!
How many times others make money has nothing to do with you as a novice. What matters most to you is whether you realize that you are one of the 90% who lose money.
You will lose money. After you have figured out your positioning, you must think clearly. This market is very risky. Do you want to enter? You'd better think about this question. For example, the success rate of entrepreneurship is about 5% to 10%. Why do you still want to start a company? Why do you see so many people starting companies and changing their lives?
That's because the benefits behind it are really huge. If you are willing to challenge yourself, to start a company, or to enter the world of trading and take it as a compulsory course in life, then I will give you some help and tell you what you can do and what you can't do.
There is a saying in (Ghost's Gift): "Trading is a game for losers. Those who are best at losing will eventually win."
But everyone who wants to enter this market sees other people's success stories and wants to make a hundred times more money, fantasizing about becoming the one in a million who succeeds. They think they are here to make money and the money is there waiting for them to take it, and almost all of them end up losing money. You must understand that when I enter this market, I must be a loser at the beginning.
So how do I control my risk? Since I will fail, I know I need to spread my funds and fail more often. Through these failures, I can learn how to make a trade, so that you can make a profit. The person who is best at losing will eventually win.
Every time I lose, I will learn a lesson from it. Every time I lose, it will not affect my overall principal. And after losing, it will not affect my mood, instead of losing at this time, I will immediately make it back in the next transaction. Then this person is not good at losing, but always on the road of liquidation and zero, over and over again!
2. Risk First ➢ When you dream about how much you can earn, you often ignore how much money you will lose if your wishful thinking fails;
➢If you have big dreams and want to get rich in one transaction, there is no doubt that you will place a big bet.
➢So, before opening a position, calculate how much money you will lose.
➢Prioritize risk over benefit.
First of all, you should not give priority to returns, but should give priority to risks. To put it bluntly, how much money can I lose within my tolerance?
When you start each transaction, don't treat this transaction as the last one you will make. What is this time I saw it very accurately, or some blogger said it, or I saw various indicators that the market will rise next, I will go all in and I will be financially free, change my house and car. After completing this transaction, I will stop. When you have such a mentality, your position will undoubtedly be very heavy, and once you fail, you will be finished.
This kind of desperate bet is a gambler's behavior. 90% of us in this market will lose. That's because many of these people bring a gambling habit to such a trading field. So are you sure you want to keep this gambler's habit? If you are sure, then you are still among the 90% of people, and you will not be able to get out of it in a short time.
So what should you do? You should spread your chips to ensure that you have the ability to trade many times. Because some of your previous trades are like when you first started learning, like when you were a kid learning to ride a bicycle or learn to skateboard, you will fail many times in the beginning.
Then you must ensure that the amount of money you invest at the beginning is as small as possible, the loss is as small as possible, and the sooner you admit the loss, the better. Why? Because you are here to use money to learn experience at the beginning.
In this market, people without experience use money to buy experience, and people with experience use this experience to make money. What stage are you in now? You need to have a clear understanding of yourself.
3. The Law of Large Numbers
➢In the coin tossing game, the more times you toss a coin, the closer you get to 50 percent;
➢ If you decide the win or loss once and bet all in every time, if you are lucky, you can double your money quickly, but if you guess wrong once, you will lose everything;
➢Those who make hundreds of times a year should soon surpass Buffett, but why not? Success or failure is due to heavy investment;
This coin is a hundred-fold coin, this coin is a thousand-fold coin, and this coin can be multiplied tenfold, so all you see are profits. Because only when such profits are written on the picture will you click in and watch it, using this method to lure you!
Have you ever thought about what the risk is? The risk is that if a coin may increase 100 times, then there is a 99% chance that it will return to zero. You must be aware of this and you cannot only consider the benefits and completely ignore the risks.
Just like tossing a coin, the probability of getting heads or tails is 50%. If I have 10 coins in my hand, I can toss them 10 times, but if I am unlucky, I may lose all of them.
If I only have one coin, and I guess heads or tails, and I use one coin to decide life or death, then you would be very scared, right? But if you have 100 coins, or 1,000 coins, and you toss them 100 times, or 1,000 times, the final result will definitely be 50%.
According to the law of large numbers, your final winning rate is 50%. If my winning rate is 50%, and I raise my profit-loss ratio to 2:1, then you will have a stable profit. Don't think that the mathematical method is simple, but you can do it this way.
Why? Because you are a human being, and you can't be like a machine or mathematics. You will be impatient, greedy, fearful, and you will have all kinds of emotions that will make you mess up the coin tossing game.
But if you come to this market to test and learn, you will win in the end if you sell many times instead of deciding the win or loss in one round. That is to say, if you make the profit and loss ratio 1.5 to 1, or even 2 to 1, or even 3 to 1, then you will win. The synonym of deciding the win or loss in one round is the full position trading of the exchange, because the risk is really very high.
You see many people double their money quickly with full positions, and the curve is very, very steep. But if you guess wrong once, you may lose everything. That's why you see many people double their money hundreds of times at this time, hundreds of times in a month or a week. At this speed, you think you can surpass Buffett in this year. But why didn't you do it? Why did many people lose money? After losing all the principal, they borrowed money everywhere. They succeeded with heavy positions, and they also failed with heavy positions! Don't hold all positions, don't be heavy, don't be Liang Xi, be Buffett.
4. Position-oriented/stop-loss-oriented ➢ The traditional approach is to divide the position into 100 equal parts, invest 1% of the total funds each time, and make 100 transactions.
➢However, how to set the stop loss and how much to lose each time is actually a bit troublesome.
➢It is better to use stop loss as the guide and lose a fixed amount each time.
➢Before the trading system matures, the stop loss space should never exceed 1% each time.
➢The tools we will use are Long and Short from Tradingview.
Some traditional practices tell you to divide your position into 100 parts, and invest 1% of your funds each time to make 100 trades. This is like flipping a coin 100 times, and you will always get closer to a 50% winning rate. At this time, I can go long or short at will, and your winning rate is 50%. If you flip 100 times, 1,000 times, you will get closer and closer to 50%.
But this method is a bit stupid now. If you want to invest 10,000 US dollars, then your position is divided into 100 equal parts, and you can trade 100 US dollars each time. But I lose 10 US dollars each time with this 100 US dollars?
So what I recommend to everyone is to use stop loss as a guide. How much money do you lose each time? You don't need to worry about how much money you have. Just consider one question: how much money do I plan to lose each time? If you have 10,000 US dollars, then I lose 1% each time. If you are a trader with some experience, a 1% loss is okay.
But if you are a new trader, I suggest you lose 0.5% each time. That is to say, if I have 10,000 US dollars, I can only control myself to lose 50 US dollars each time. Before the trading system matures, the stop loss space should never exceed 1%. Each stop loss is for the position, how about 10% of all my funds? This is like flipping a coin ten times, which is really dangerous and cannot be done this way.
5. Consistent positions If you use the same trading strategy, the stop loss space for each transaction should be roughly the same. This can ensure the consistency of positions.
When it comes to positions, be sure not to fluctuate greatly.
➢The position is large at first and then small, usually because of losses. "After repeated failures, people become less and less courageous." Therefore, no matter how many times they win later, they cannot make back the initial losses.
➢Positions start small and then grow big, usually because of profits. “With repeated victories, people become bolder and bolder.” Then, if a position suffers a loss once, the countless profits made previously may not be enough to cover the loss.
No one will tell you that you must pay attention to the consistency of your position, that is, I must ensure that my stop loss space is consistent. I cannot say that I think this transaction is a very good transaction, so I should put 10 times or 100 times the usual position at this time. My usual stop loss is 100 US dollars, so my stop loss this time is 10,000 US dollars, because I think this transaction is too good.
You must remember that your positions can fluctuate! No matter how many times you win, it is difficult to make up for your previous losses. When your positions are enlarged, your fear and greed will also be enlarged. You will not be as calm as when you had a small position before, and you will not be able to wait patiently for it to reach the profit stop or stop loss.
The position is very small at the beginning, and then it becomes very large, and you become more and more courageous. But when the position is large, you will lose all the profits you made 100 times in the past. So you must make sure to think about it, no matter whether I will make a profit or a loss next time, what is the position this time? I want to fix it and keep my position consistent!
7. Disciplined Trader ➢ Without discipline, rules are meaningless.
➢What enables you to make stable profits is not the trading strategy, nor just a complete set of trading rules, but the discipline to strictly implement any trading rules.
➢Discipline requirement: stop loss decisively.
➢Set a preset stop loss instead of a mental stop loss.
➢If your position is too large and you cannot afford to lose, you are prone to emotionally stop loss.
What can make you stable profit is not trading strategy but discipline! Who has a secret to spend 100,000 US dollars? If I buy it, I will make money with a high probability, so should I buy it?
You should not buy it, because it is not these trading strategies that can make you money. Even if some big V tells you a lot of trading strategies, it is not them that can really make you money, but you must have a complete set of trading rules. And these trading rules are not all, you must have the discipline to strictly implement these trading rules.
For example, decisive stop loss, or consistent position, or every fund is dispersed and so on. At the same time, I also want to tell you that mental stop loss is useless. I told myself that I would stop loss when the price fell to a certain level, but this is useless. Even the stop profit is the same. When you reach that level, you will feel that it will rise again, and you will not stop profit. You must ensure that every time you open a position, you must set the stop profit and stop loss, otherwise you will not open a position. This is a very important principle!
One thing that is particularly important to note is that simulated trading does not provide you with any training or help at all, because it will not really make you lose money. It will not really let you experience the greed and fear in the trading process, and the anxiety that causes sleepless nights. It is this kind of anxiety that can improve your trading level.
8. However,
If you think that these rules are meaningless and just talk in books, and are not as smooth as full position and heavy position, then, unfortunately, you will really understand it only after many big losses.
Money management, or risk management, is the first principle in trading.
Only a very small number of people have enough capital to make a comeback after suffering a huge loss. Most people leave the market immediately after losing everything.
In the world of trading, 90% of people lose money, but those who can hold on are always closer to success.
If you can survive in the stock market for ten years, you should be able to continue to make money; if you can survive for twenty years, your experience will be extremely valuable for reference; if you can survive for thirty years, then when you retire, you will definitely be an extremely wealthy person!
If you think that what I said above is meaningless, and that it is not as good as the full position and heavy position. Then unfortunately, only after experiencing many big losses, you will really understand that these are useful. I made a video like this here, in fact, I am playing a role of letting fate take its course. I think only 5% or 10% of 100 people will take it seriously, and 90% of people will think it is right!
Will the market go up or down today? This is not important, because 90% of people will lose money. Just like I am a doctor, I know that smoking is harmful to health for 90% of people, but I will only tell you that smoking is harmful to health. As for the fact that so many people in the world are still smoking, I can't go to the street and take away other people's cigarettes and say that they can't smoke. Otherwise, others will think I am a lunatic.
I also told you that you must stop loss, you must have risk control, and you must diversify your funds. If you don't stop loss, you don't do this. Then you can only experience a big loss or multiple big losses, and then you will really understand that this thing is useful.
Fund management or risk management is the first principle of trading. It is very important to put it in front of the right and wrong. Only a very small number of people, that is, after experiencing such a big loss, still have the principal to make a comeback. That is to say, after a big loss, even if you lose 50% of your funds, you still have. This requires you not to go all in, because going all in means you have nothing. Most people just leave after losing everything.
Whether you want to start a business, do you want to invest all your money or all the borrowed money? Then you will not be able to make a comeback! Then 90% of the people in the trading world will lose money, and those who can persevere are always closer to success! "There is nothing new on Wall Street."
Robert Capa is a famous war photographer. He once said: "If your photos are not good enough, it's because you are not close enough." Later, he did take very good photos, but he was killed by a landmine because he was too close!
At the same time, if you are in this financial market, especially in the Bitcoin market, you don’t need to endure for 10 years, 20 years, or 30 years. If you can persist for one, two, or three years, then you will definitely be an extremely wealthy person!
How long can you last in this market? Everyone has different learning abilities. Some people have suffered losses and liquidation for three years. After three years, they are still liquidated. They just refuse to rest and stop losses. There is nothing you can do!
Here is a quote from Robert Capa:
If you are not making enough money in this market, it’s usually because you are not sticking around long enough!
The cruelest and fairest thing about the financial market is that it never awards prizes for hard work, but only pays for being right. The traders who survive are not forecasting masters, but ascetics of risk management. When you truly understand that "slow is fast", you have obtained the qualification ticket to enter the market.
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