- My trading insights: Trading is a journey of self-cultivation. Each point is a lesson learned after experiencing struggles and setbacks, after going through countless account blow-ups. I also did not escape the extreme market conditions of 2021, where I remember blowing up over 100 accounts. At that time, I firmly believed that there is always a way out, and after facing death, there is bound to be rebirth. As long as I am willing to be proactive, hitting rock bottom is just the beginning of hope.
No one can easily achieve success in this market from the start; everyone has gone through countless hardships and slowly corrected their trading habits, gradually controlled their mindset, and improved their understanding to stabilize their journey through this bumpy trading path. If you have rich trading experience, I believe you can understand this.
1. Averaging down and holding onto losing positions is very foolish; when facing a large one-sided move, you will be very passive. Therefore, every trade must have a stop-loss. Only by protecting your capital can you navigate the trading market smoothly; if you leave the green mountains, you need not fear the lack of firewood.
2. Pay attention to market sentiment and do not enter the market during thin trading, such as before data releases or important speeches. Generally, major data events can cause spikes in both directions, and situations of dual explosions in long and short positions happen all the time, so we try to avoid trading during the release of major news.
3. When market conditions are not suitable for entering, it is best to wait. If you experience three consecutive stop-losses, you should not continue trading that day. Waiting is an indispensable part of trading, because after several consecutive losses, it is very difficult to control your mentality. Continuing to trade greatly increases the likelihood of losing your rationality, being unwilling to accept defeat, going against the market, and increasing your position size to gamble on the market. I believe most people blow up their accounts because of this. At least in 2021, I suffered a blow-up due to being wrong in one direction, and after frequently hitting stop-losses, I lost my rationality and frantically averaged down. After consecutive losses, losing your rationality means you don’t know to turn back in time. At that moment, you need someone by your side to timely remind you and bring you back to reality. Unfortunately, there was no one present at that time.
4. Focusing on the one market you are best at will maximize your profits. Paying attention to too many markets only leads to robbing Peter to pay Paul, resulting in mediocre returns. Human energy is limited; focusing on so many markets can lead to picking up sesame seeds while losing watermelons, making it difficult to maintain focus, leading to frequent stop-losses and a downward spiral that becomes uncontrollable.
5. Pay attention to fundamentals; combining fundamentals with technical analysis is the best strategy. The broad direction is determined by fundamentals, while the entry point is determined by technical analysis. Many people say that fundamentals are unimportant and can be ignored; I cannot agree with this. I feel that the news is very important, and technical analysis is secondary to it. Therefore, I believe that combining the two is the best way to move forward steadily.
6. You absolutely cannot gamble on data; unexpected events always occur. Moreover, actual market movements may not fully align with the direction of the data, and situations of whipsawing often arise. All data also has a lag, and by the time you see the data, the market may have already moved on. There is an information gap here, which is why I always say to buy on rumors and sell on facts. This requires the baptism of experience.
7. Break free from habitual thinking; the market can change direction at any time. It is easy to form a habit by trading in one direction, making it difficult to shift your mindset when the market reverses. It's like tightening screws in a factory; repeatedly doing a single task can unconsciously form a habit, making it hard to change your thinking. The market offers opportunities for both long and short positions every day; thus, after accurately judging the trend, occasionally participating in pullback strategies is also acceptable. For pullback strategies, participate lightly; it’s not about how much you can earn or how many times you can multiply your investment. It's to keep your mind clear at all times, so that when the market reverses, you can timely adjust your thinking. Habit can be a very terrifying thing.
8. Frequent trading makes it difficult to make money; it not only drains energy but also increases risk exposure. Many people feel that operating a few trades or even dozens of trades daily, while maintaining a break-even point and making small profits, is impressive. I strongly disagree with this. Not to mention the transaction fees generated by frequent trading, can you maintain a positive profit-loss ratio every day? The most fatal aspect of frequent trading is that you have to constantly monitor the market, which can exhaust you and make it easy to lose control of your mindset and become irrational.
9. Trading is a huge drain on physical and mental energy. Avoiding fatigue is crucial, and resting is important. This also relates to the drawbacks of frequent trading mentioned earlier.
10. Any trading strategy has its advantages and disadvantages; they exist in a relationship of mutual generation and restraint, a contradiction that unifies. There is no perfect strategy in the world, but skilled traders can capitalize on their strengths while avoiding their weaknesses, decisively betting in suitable market conditions; in unclear or unsuitable market conditions, it is crucial to hold back and maintain a wait-and-see approach. This requires time and adjustment, as restraining oneself can be quite torturous; appropriately managing oneself is also a key aspect of trading.
11. Quantitative trading strategies can only identify structural logic (alpha) based on past data and execute trades. However, history does not represent the future, as the factors influencing the market and their interrelations are always changing.
Finally, borrowing the words of foreign exchange Sudanese King Bill Lipschutz: So many people want the positive rewards of being a successful trader without being willing to go through the commitment and pain. And there is a lot of pain! Trading is a practice that tests human nature, cherish it as you go.
