I. The longer it consolidates, the higher it will rise; the longer it consolidates, the higher it will go.
Horizontal fluctuation is a sign of bottom absorption; the more chips absorbed, the greater the ambition.
II. When it suddenly drops after a period of sideways movement, it will definitely be a small drop; after the drop, it must rise. When it suddenly rises after a period of sideways movement, it will definitely be a small rise, and after the rise, it must drop.
During the phase of horizontal absorption, the oscillation is a strong absorption phase, characterized by wash trading, which is simply back and forth fluctuations—simple yet effective.
III. If it does not make new lows, it will quickly rise; if it does not make new highs, it is not good.
Not making new lows indicates that there are major players entering the market for continuous acquisition, indicating a bottom is nearing. Not making new highs indicates that the market maker is secretly unloading, which is a bad sign.
IV. When the volume reaches a small point, a big rise is inevitable; when it reaches a peak, a big drop is inevitable.
The trading volume is at a standstill, with nobody buying or selling; either everyone is holding onto their chips waiting for a rise, or the market maker has run out of chips waiting for a drop.
V. After reaching a peak and a slight drop, it will probe again; after reaching a bottom and rebounding, it will touch again.
Reaching out again is when the market maker sells off the unsold goods again, and touching the foot is to collect the chips shaken off at the bottom once more.
Personal asset allocation in the crypto world can be simply summarized as two focuses, one trading strategy, and one method of rebirth:
Two focuses: Position management + Capital allocation;
Trading strategy: Short, medium, and long-term strategies;
Method of rebirth: Start over from zero.
1. Capital allocation
Let's first talk about capital allocation. For personal investments, funds can only be your available and idle funds that do not affect your survival. Therefore, borrowing money, lending, or mortgaging to trade cryptocurrencies is all inadvisable. We are engaging in investment, not gambling our lives away.
In terms of capital allocation, balance between risk and return is the standard. A well-rounded capital allocation that can withstand market risks must be a diversified allocation of low, medium, and high-risk products.
For the current investment targets in the financial market, they can be classified according to risk preference as follows:
Low risk: Cash, bank deposits, money market funds, bonds
Medium risk: Gold, funds, real estate
High risk: Stock market, foreign exchange, digital currency
In terms of capital allocation ratios, there are significant differences among investors with varying risk preferences:
Risk-averse: Low risk: 60%, Medium risk: 30%, High risk: 10%
Conservative investors: Low risk: 40%, Medium risk: 30%, High risk: 30%
Risk-preferring: Low risk: 20%, Medium risk: 30%, High risk: 50%
The essence of the crypto market is high risk, along with high expected returns. Therefore, for ordinary people, investing all available funds into the crypto market without recognizing the risks and returns is inherently irrational behavior.
The financial market cannot be a one-sided market; very few can make money in the market. We need to rationally allocate the flow of funds, especially in the crypto market, to be prudent rather than blindly gamble.
2. Position management
After clarifying the allocation ratios of various risk assets, we can look at position management in the cryptocurrency market (taking 50% of available funds invested in the market as an example).
Position management in the crypto market involves two aspects: one is the cash utilization level, and the other is the specific digital currency position management.
In terms of cash utilization, during non-obvious bull market conditions, the positioning level for conservative investors is as follows:
Cash: 30%
Digital assets: 50%
Liquidity: 20%
Cash is used to wait for trend movements; when a trend emerges, gradually increase positions; the proportion of digital asset positions is 50%, which is not a one-time buy-and-hold ratio, but rather achieved through systematic investment to gradually increase positions based on market predictions; the 20% liquidity is to cope with short-term market conditions, seizing potential buying opportunities. When the opportunity passes or if a judgment is mistaken, it is necessary to sell in a timely manner to free up liquidity.
For specific cryptocurrency positions, you can refer to the following position ratios:
BTC, ETH: 60%.
Platform coins: 20%, mainstream exchange platform coins, such as HT, BNB, OKB.
Mainstream coins: 10%, must meet two conditions: daily trading volume proportion and market value ranking proportion both in the top 50 coins.
Altcoins: 10%, to seize short-term opportunities.
Bitcoin and ETH, as the leaders in the market, occupy absolute advantages in market value share, liquidity, and audience groups. They are essential assets to be allocated.
In addition, mainstream exchange platform coins with stable profit models and user bases are also essential assets to be allocated, regardless of whether it is the market for mainstream coins or the market for certain altcoins, platform coins will perform. As long as there is trading, there will be liquidity for platform coins.
As for the current crypto market, it belongs to a one-sided market. Mainstream coins follow the movements of the BTC market and do not have many independent market opportunities, only exhibiting larger fluctuations during simultaneous rises or falls. Therefore, based on stability and profitability, a small allocation is sufficient.
For most altcoins, there are only short-term market conditions, with no value or necessity for medium to long-term holding. After several years of development, the era of altcoins telling stories has ended. Projects without practical application scenarios or unique technological features in blockchain have basically little hope.
3. Trading strategy
Next is the trading strategy. Unless professional investors who have undergone deliberate training have relatively complete trading strategies, most people do not have a strategic mindset. They confuse the concepts of short, medium, and long-term, as well as position management for buying and selling and blindly seek various methods, continuously making mistakes without summarizing practices to find strategies that suit themselves.
For trading strategies, simply put, one is a short, medium, and long-term trading strategy, one is a profit and stop-loss strategy, and one is a buying strategy. Mastering these three points and applying them flexibly is sufficient.
Short, medium, and long-term trading strategies require you to differentiate each of your trades as short-term, medium-term, or long-term.
Short-term: End battles within 3 days to 2 weeks; the longest is about 1 month;
Medium-term: 2 weeks to 3 months, maximum of 6 months;
Long-term: Over 6 months.
Depending on the trading time, strict execution is required. Short-term trading generally chases short-term market hotspots. When the market changes, one should exit at any time; medium-term corresponds to trend markets, during which positions can be gradually built and increased; long-term corresponds to large cycles and systematic investment strategies.
Regardless of whether you are trading short, medium, or long-term, the key to making profits in the market is still to buy low and sell high. Therefore, regardless of market conditions, we need to take timely profits and stop losses to grasp profits at each stage of the market.
Taking profit is actually difficult to calculate, just respond flexibly according to your expected value and the specific market situation. Don’t worry too much about selling too early or earning too little; compared to losses, being able to make a profit has already beaten the vast majority of investors in the market. After experiencing so many market conditions, everyone can actually find that making a profit on paper is not difficult; the difficulty lies in taking profit in a timely manner.
Setting stop-losses is relatively easy to plan, yet difficult to execute, especially when one is emotionally invested. Many miss their stop-loss due to their emotions while going against the trend, leading to being trapped; such instances are countless.
If you don't know how to set stop-losses, you can execute them according to the following methods:
Short-term: Losses within 20%, immediately set stop-losses if no results are seen after buying. Short-term is for seizing short opportunities; if the judgment fails, cut losses immediately without delay.
Medium-term: Losses within 30%, set a stop-loss once. Because medium-term positions are not one-time purchases but rather built in several increments, the average cost is relatively similar to the cost of cutting losses at 20% in short-term trades, or even less.
Long-term: Losses around 30% are noted, not for liquidating positions, but for staggered stop-losses, where each stop-loss is on profitable positions built at low levels.
The buying strategy is not a one-time all-in operation, nor does it require light positions every time, but it should distinguish between short-term, medium-term, and long-term trading.
Short-term: Full position. Since it is short-term, just buy in one go without waiting, because opportunities are fleeting.
Medium-term: Buy in 1-3 times, with the first time being a light position, waiting for market development, and gradually increasing positions when clear signals appear.
Long-term: Buy in batches, similar to a systematic investment strategy, to achieve the goal of reducing purchase costs through long-term continuous investment. When buying in batches, both space and time should be stretched a bit; you can't just buy back several times after a 5% drop or after only a week. At least there should be a space of more than 10% and a time frame of more than two weeks to a month. It's recommended to appropriately lower your sensitivity to short-term fluctuations and gradually learn to operate on a larger cycle.
4. Method of rebirth
Lastly, let's talk about the method of rebirth; it's quite simple. Regardless of the reasons that led to your current position, and regardless of whether your account is profitable or in loss, since the current outcome has been produced, it indicates that your previous methods and strategies are problematic. The only way to escape reality is: start over from zero.
To put it bluntly, sell all the cryptocurrencies in your account, exchange them for stablecoins or cash, and then start over using the various methods mentioned above. Every operation must be a rational investment, with methods and strategies, so that you won’t carry the burden of past mistakes. However, this is actually the most difficult part, akin to starting all over again, telling yourself that past operations were wrong and acknowledging your failures.
There's also the second layer of meaning in rebirth. In the crypto market, one should not have a long-term mindset, but rather constantly adjust based on the changing market conditions and rebalance at high points or suitable price levels.
Otherwise, you will inevitably be restricted by historical positions and operations, unwilling to stop loss when it's time to stop loss, and too greedy when it comes to taking profit, leading to returning the money earned back to the market. You see an endless stream of real money being poured into the crypto world, yet no funds are being withdrawn. This is completely a paradoxical market.
Of course, this does not mean to cut losses and restart immediately when at a low point, but to have the awareness of starting over. When you feel it is appropriate, urgent, or when the market rebounds to a suitable timing, attempt this action. After all, starting with a light load is far simpler than carrying a heavy burden.
Now I will share with you the trading iron rules that I adhere to:
I. Overall trading discipline
Trading discipline is a macro regulation for controlling risk, aiming to avoid human psychological weaknesses and mindset changes. It helps control trading frequency and other aspects after mindset changes. It is the first component of the trading system.
1. Macro discipline
(1) If you incur three consecutive losses, you should force yourself to take a break, do not trade blindly, analyze the reasons for your losses, adjust your mindset, and then look for opportunities to enter.
(2) If you make profits exceeding 50% from continuous trading, then take a mandatory break.
(3) Daily trading should not be too frequent.
(4) After a stop-loss, do not conduct counter-trend trading within 3 hours.
2. Discipline before entry
(1) Do not enter the market during quiet times.
Market trading lists before holidays and weekends have low fluctuations, making trading clearly unsuitable at this time.
(2) Trade in clear trend coins, do not trade in unclear trend coins.
(3) When going long, only trade strong coins; when going short, only trade weak coins.
(4) Trading must include at least four basic elements: entry price, stop-loss price, target price, and position control.
(5) When the market's volatility is low, do not trade within the oscillation range.
3. Discipline after entry
(1) If the short-term position earns more than 30 points, immediately raise the stop-loss to near the cost price.
(2) Execute trading plans at the same time level. For example: operations based on the hourly chart cannot be rashly changed due to short-term negative signs on the 30-minute chart.
There must be clear rules for actively exiting the market, that is, clear exit rules.
(3) After entering a counter-trend position, if a loss occurs, do not change to a medium-term position due to any signals. Short-term counter-trend trading positions should not be held overnight.
II. Positioning principles
1. Principles of trend-following position building
An upward trend will never stop just because the increase is too large, nor will a downward trend stop simply because the decrease is too large.
The greatest characteristic of a trend is continuity; trend-following position building is the method with relatively the least risk.
Principles:
Entry: Be cautious about entering the market at any time, even when trading with the trend, you must trade based on evidence and strictly control risk.
Holding: If there is no signal to change the trend, firmly hold your confidence.
Profit: Follow the trend, continuously raise your stop-loss, and do not predict high points to grasp the continuity of the trend.
If the price rises along the upward trend line, consider continuing to buy when the price tests the trend line support for a rebound, and chase buy upon breaking through the previous high, but do not easily take reverse positions unless there are clear signals of trend reversal.
2. Principles of counter-trend position building
When building positions against the trend, it is especially taboo to be greedy for cheap; under no circumstances should a particularly large drop be used as a reason to build positions.
Be particularly cautious: Avoid small-scale counter-trend trades.
Principles:
a: Control is the first priority in counter-trend trading, to prevent incurring irrecoverable losses.
b: Give up. Rebound opportunities will always appear, but many rebounds are not suitable for trading: small scale rebounds, weak rebounds, or the first wave of rebounds. These opportunities are all significant high-risk opportunities.
c: Before confirming a trend reversal, counter-trend trading must be quick in and quick out; do not linger.
d: Counter-trend trading without basis. Trend-following trades can sometimes even be conducted without basis, as long as risk is well controlled. However, in counter-trend trading, even if risk is controlled, do not trade without basis.
III. Closing principles
As exit signals for trend-following trades, mainly use indicators such as Dow Theory, channels, wave analysis, candlestick patterns, candlestick combinations, moving averages, MACD, etc.
Note 1: Exit signals for trend-following trades also require multiple signals for validation before being considered exit signals; whereas in counter-trend trading, a reliable signal can serve as an exit signal.
For example: The use of channel closing signals: The resistance created by the channel is often viewed as an exit signal, but it's also important to distinguish between medium-term and short-term concepts; not all of them are necessarily closing signals.
Note 2: The exit signals generated by the analysis methods should preferably be signals of the same level.
For example: If the signal indicates a strong buy on the hourly chart, then the exit signal should also come from the hourly chart or higher time frame charts, and should not use exit signals from charts below the 30-minute mark.
During the process of holding positions in the trend, if a signal for counter-trend position building of the same level appears, you need to exit the trend position or reduce your position, or further tighten your stop-loss to a very close support level.
When a counter-trend trade has already issued a trend-following signal, the counter-trend position must exit; at this point, the exit signal is equivalent to the entry rule of trend-following trades.
IV. How to set stop-loss
1. The necessity of stop-loss
A useful and simple trading principle—the 'Alligator Principle'. This principle is derived from the way alligators devour: the more the prey struggles, the more the alligator benefits.
Assuming an alligator bites your foot, if you try to free your foot with your arms, its mouth will bite both your foot and arm simultaneously. The more you struggle, the deeper you sink.
So, if an alligator bites your foot, remember: your only chance of survival is to sacrifice one foot.
If expressed in the language of the crypto market, this principle is: when you know you've made a mistake, immediately stop loss and exit! Do not look for excuses, reasons, or any expectations; get out quickly.
2. How to set stop-loss
(1) Point stop-loss setting method: such as 30 points, 40 points, 50 points, etc., choose the appropriate points based on different trading cycles.
For short-term trades, it is best to choose a stop-loss of around 30 points; for medium and long-term trades, stop-loss should also be kept within 100 points.
(2) Set stop-loss levels based on the most recent highs and lows: generally choose 10-20 points above the high or 10-20 points below the low. (As shown below)
(3) Setting resistance and support levels for technical indicators: mainly include moving averages, trend lines, Fibonacci retracement.
For example, as shown in the figure below:
V: How should positions be controlled?
(4) Setting K-line shape reference points: mainly include tangent lines of trend lines; neckline positions of head and shoulders or rounded tops; upper and lower rails of channels; and edges of gaps.
(5) The integer price points of cryptocurrencies: This is mainly because integer price levels have a certain supportive and resistance effect on the psychology of investors.
V. How should positions be controlled?
1. Total position control rules
In total position control, already profitable positions and those locked in risk at zero should not be counted.
a. Trend trading
We divide positions into light, medium, and heavy positions. In trend-following trading, you can retain medium positions as positions following the market trend, while other positions serve as liquid positions.
The specific division can be adjusted according to the investor's personal preferences: those who focus on short-term operations can increase their liquid positions, while those who focus on medium-term operations can reduce their liquid positions.
b. Counter-trend trading
In counter-trend trading, position control is even more important. In most cases, you can only adopt light positions; for trading rules that are already very mature and have a high success rate, you can appropriately increase the position to a medium position.
In counter-trend trading, unless the direction has clearly reversed, there should be no opportunity for heavy positions.
c. Range trading
In a consolidation market, position control is relatively strict. Before breaking through the consolidation zone, do not take heavy positions; after the breakout, positions can be gradually increased.
VI. Choosing trading times
1. Trading times that are prone to losses:
2. Choosing trading periods
Friday: The market on Friday is the hardest to predict.
Holidays: Trading volume at this time is very low, especially on holidays in the United States and the United Kingdom, which have a significant impact on the market. Many banks and institutional investors do not participate in trading.
The market may fluctuate very little, and it may also amplify fluctuations due to low trading volume, leading to short-term dramatic price increases or decreases, making it very difficult to grasp.
News and data: Before the release of data or news, it's very difficult to predict the direction of price movement. If you trade rashly before grasping the corresponding methods, the results may be quite painful.
2. Choosing trading periods
During this period, many important data and news events in Europe and America will be released, making it the trading period with the most volatility and the highest number of participants, as well as the best trading period.
For Chinese investors, even if work prevents you from catching afternoon trades, you can still trade during the overlapping hours of Europe and the United States.
VII. Finally
Trading discipline is particularly important; I believe you will no longer trade casually. Knowing how to enter the market, how to exit, and how to control positions will definitely improve your profitability.
However, knowing the trading rules is not enough for trading. Many times, trading is counterintuitive; many people have very good trading strategies and rules but fail to strictly execute them due to human weaknesses, making it difficult to reach the realm of masters.
The true strength of trading experts lies not in having unique trading rules but in strictly executing their own established rules.