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 multiple painful lessons.
Unfortunately, retail investors have short memories; they suffer huge losses each time due to these mistakes. Are you also paying for the same errors? 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 funds into a trade, you are essentially replacing rational decision-making with a gambler's mentality. Any trade determined by market volatility carries risks, and heavy positions only amplify these risks, leading to unbearable potential losses. Heavy trading often leads to a chain break in funds, or even a complete exit. The unpredictability of the market means you can never guarantee that every 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 cause a devastating blow to the overall funds.
Second, no stop-loss leads to certain death, the grave of luck. No stop-loss trading is the second major pitfall for traders; lacking a stop-loss plan means you cannot effectively control risks, ultimately having to passively endure in market fluctuations. No stop-loss trading will prevent you from exiting in time during losses, causing the loss amount to continuously expand, possibly leading to complete ruin. It is advisable to set a stop-loss point before each trade and strictly enforce it. A stop-loss is not admitting defeat, but a basic respect for market risks.
Third, greed leads to certain death, the trap of desire. Greed is one of human nature's weaknesses; traders often attempt to earn unrealistic profits, resulting in the neglect of potential market risks. Over-pursuing profits can cause hesitation when profitable, ultimately missing the best timing to exit, even leading to profit reversal. It is recommended to set reasonable profit targets and exit promptly upon reaching them. Remember, trading is not charity; your goal is stable profits, not overnight wealth.
Fourth, blind entry leads to certain death, the risk of ignorance. Blind entry is a lack of trading planning; without a clear entry logic, it is merely gambling rather than trading. Blind entry can cause you to lose direction in the market, ultimately sinking into the abyss of losses. It is advisable to create 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 confidently.
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 transaction costs but also raises the likelihood of making mistakes. Frequent operations will leave you exhausted 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 to sink into a loss pit. Left-side trading exposes you to enormous risks amid market fluctuations, ultimately causing losses due to misjudgment. It is advisable to wait until the market trend is clear before entering. Right-side trading might miss some profits but can effectively reduce risks.
In the trading market, many people are superstitious about 'frequent trading' and 'daily compounding', believing this is 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 an abyss. Today, we will uncover the deadly traps of frequent trading from multiple perspectives, such as mathematical probability, cognitive dimensions, and market structure, and reveal the real core of growing small funds -- framework and cognition.
The Mathematical Trap of Frequent Trading: Why Are You Destined to Lose?
1. The 'Invisible Killer' of Trading Costs
Assuming the cost of a single trade is 0.5% (including commissions and slippage), if you trade 5 times a day, the trading cost for a year will reach 625%! This means that even if your win rate is very high, frequent trading will cause your funds to be consumed by costs.
2. The Cruel Truth of Win Rates
Even if you have a 60% win rate, what is the expected return for 100 trades? The calculation is as follows:
(60 profitable x 1% - 40 losses x 1%) - 100 trades x 0.5% = -0.3%. In other words, the final result of frequent trading is likely to be a loss.
3. The Warning of the Kelly Formula
The Kelly formula tells us that when trading frequency exceeds the optimal betting frequency, the funding curve will show exponential decay. Frequent trading is like walking a tightrope on a cliff; a slight misstep can lead to a fall.
Cognitive Dimensionality Reduction: Frequent Trading Turns You into 'Market Chives'
1. The Trap of Time Frames
Research shows that noise accounts for as much as 92% of the 5-minute candlestick chart, while the noise on the daily chart is only 37%. Frequent traders are often misled by short-term fluctuations, neglecting the true trend.
The Collapse of Decision Quality: The 'Miller's Law+' in psychology points out that the human brain has an effective decision-making limit of 7+2 times per day. Frequent trading can lead to a cliff-like drop in decision quality, ultimately resulting in emotional trading.
3. The Huge Waste of Opportunity Cost
Frequent traders spend 90% of their time chasing 10% low-quality fluctuations, while missing out on the real big trends. This 'picking sesame seeds and dropping watermelons' behavior is doomed to fail in achieving a qualitative change in funds.
The Truth of Market Structure: Why Are You Always the Loser?
1. The Cruel Reality of Liquidity Layering!
Top institutions can access T+0 arbitrage opportunities, while retail investors can only trade secondary liquidity. Frequent traders are destined to be at a disadvantage in this unequal game.
2. The Secret of Volatility
Taking the S&P 500+ as an example, data from the past decade shows that over 70% annualized 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, the closer expected returns approach zero. Frequent traders are like gamblers constantly betting in a casino, ultimately losing all their chips.
The Winning Strategy of Top Traders: Framework and Cognition
1. Opportunity Filter+: Capture only top-tier opportunities
Top traders establish a three-dimensional evaluation system (trend strength, volatility quality, risk premium), selecting only the highest quality opportunities to discuss.
2. Focus effort at critical points
View funds as a probability wave, releasing only at critical points of momentum. This 'crocodile-like' waiting philosophy allows the funding curve to show exponential growth.
3. Cognitive Arbitrage: Utilizing the Collective Misjudgment of the Market
True excess returns come 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 are adept at capturing such macro misalignment opportunities.
The Path from Small Funds to Large Funds
1. From 'Addiction to Trading' to 'Strategic Patience'
The essence of trading is realizing cognition, not accumulating operations. When you learn to patiently wait and capture only key opportunities, the growth of funds will come naturally.
2. Build a 'Major Event Impact Model' to record and verify the impact strength of 10 fundamental turning points on asset prices over three months. This training can elevate your opportunity recognition ability to a new dimension.
3. Framework Determines Outcome: The core of growing small funds is not frequent trading, but a profound understanding of the essence of the market. Only by enhancing cognition can one remain undefeated in trading.
Conclusion:
Frequent trading is a path destined for failure, while true successful individuals often possess an extraordinary framework and cognition. As Soros said in 'Financial Alchemy': 'True excess returns come 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 cognitive contest. Only by continuously improving oneself can one remain undefeated in the market.
I have navigated the market for many years, deeply understanding both opportunities and traps. If your investments are not going well and you feel reluctant about losses, leave a 999 in the comments! I will share insights.
