In my fourth year of trading, I had basically bid farewell to losses and margin calls, and I could control risk, but I was still making small losses and not making big profits. My capital was continuously depleted through small losses. I had also begun to feel confused, having tried almost every method available in the market, whether fundamental analysis or technical analysis, none of which worked.
It wasn't until later, as my understanding slowly improved, that I realized where the problems lay.
Whether your trading logic can achieve profitability over a long period depends on whether your trading system's win rate and profit-to-loss ratio have a certain advantage; this is the key core of a trading system.
Most people run when they make money and stubbornly hold on when they lose. No matter what entry method they use, how meticulous their entry logic is, or how high their win rate is, a wave of reverse trends can send them back to square one, plunging them into the depths.
On the contrary, some people, when they have floating profits, try to hold onto the profits and let them run, and when they incur losses, they decisively cut their losses to reduce their overall loss. No matter how simple their entry method is, even if their win rate may be below 30%, when a trend emerges, their profit-to-loss ratio will continue to expand, giving them an advantage that keeps them on the profitable side.
Furthermore, it's very hard to profit from intraday trading; in the first few years of trading, I basically kept losing my capital through intraday trading.
Some people, after opening a position intraday, may have some floating profits and almost immediately think about closing the position. However, if there are losses, in most cases, they will choose to stubbornly hold on, increasing their positions to lower the cost, trying to bet on a rebound. Of course, most of the time, this will lead to them turning losses into gains, but when they encounter a strong reverse trend, it can take them away.
If you are frequently entering and exiting in a chaotic intraday market, you may earn some income, but each of your trades is a small profit. Over the long term, that little bit of profit cannot cover your losses.
Entering the market is the first hurdle in trading, but most people cannot get past this hurdle.
The reason most people lose in trading is largely because they are trapped at the entry phase.
Most people are trying to find a high win rate entry method that allows them to make money as soon as they enter. They attempt to find some kind of rule, a holy grail of trading, constantly optimizing and improving their entry methods. When their trading goes wrong, they will prioritize looking for reasons within their entry phase.
But the truth is: entering the market is just the beginning of trial and error. Market trends are uncertain, and no one can predict how the next K-line will move. Otherwise, if you knew the K-line movement a second in advance, you could possess the entire world. No one can guarantee a 100% profit after entering the market.
How to avoid confusion in your trading?
The answer is that you need to establish a trading system with a positive expected return and then consistently execute it. No matter what the market conditions are, you can easily cope with them, remaining as calm as still water:
A trading system is generally divided into three parts:
An entry condition for trial and error.
A condition for cutting losses and letting profits run.
Plus a capital management condition that aligns with your risk preferences.
A trading system that suits you is one that refines the details within these three parts to create a trading model that operates very smoothly and confidently, tailored to your personality traits to forge your own trading sword.
In the first few years of my trading journey, I was like most people, pursuing various so-called high win rate trading holy grails, only to end up making small profits and large losses, leading to my disastrous failures.
Since I started to firmly use a trend-following trading system, it has gradually led me toward the path of profitability. The essence of trend-following is that you make small losses while consolidating, then wait for the trend to arrive, allowing for a large profit, recovering all past losses and achieving consistent long-term profitability.
If you want to establish a trading system, you must first have your own trading logic. The so-called trading logic is how you will conduct your trades, what the market conditions you want to engage in are, and how you will grasp these market conditions.
If your trading logic is wrong, then it will be difficult for the trading system built on that foundation to be profitable. The correct trading logic is to 'cut losses short and let profits run.' Only in this way can your trading system have a positive expected return.
After 16 years of trading, with a 70% loss in the first three years, experiencing various pressures, pain, and confusion, I finally had a profound realization, simplifying my trading techniques to achieve 8 years of continuous stable profits. If you don't plan to leave the stock market in the next three years and intend to treat trading as a second career, be sure to read these 10 iron rules. They are solid insights for making a living from trading, and I recommend saving them!
1. Divide your funds into five parts, and only enter one-fifth at a time! Control a 10-point stop loss; if you make one mistake, you only lose 2% of your total capital. If you make five mistakes, then you lose 10% of your total capital. If you're right, set a take profit of over 10 points. Do you think you'd still get trapped?
2. How to further improve the win rate? In simple terms, it is two words: go with the trend! In a downtrend, every rebound is a trap for buyers, while in an uptrend, every drop creates a golden buying opportunity! Which do you think is easier to make money from: bottom fishing or buying on dips?
3. Avoid stocks that have experienced rapid short-term surges, whether they are high-priced or low-priced stocks. Very few stocks can go through multiple major rallies. The logic is that it's quite difficult for stocks that have surged in the short term to continue rising. When they stagnate at high levels and can’t move up later, they will naturally decline; it's a simple principle, but many still want to take a gamble.
4. You can use MACD to determine entry and exit points. If the DIF line and DEA form a golden cross below the 0 axis and break through the 0 axis, it is a stable entry signal. When MACD forms a dead cross above the 0 axis and moves downwards, it can be seen as a signal to reduce positions.
5. Learn more, blindly follow less: Learn some knowledge about the stock market, such as looking into the company's fundamentals and listening to expert advice. Don't just listen to rumors or hearsay.
6. Don't be greedy: When you see some profit, don't think about making more. This could lead to significant losses, leaving you with nothing. Take some profits out in a timely manner; don't always think about earning more.
7. Don't be swayed by emotions: The market is highly volatile, don't let emotions control you. Don't rush to sell just because others are panicking, nor blindly chase after buying just because everyone else is buying.
8. Time is your friend: Don't rush; time is your friend. Don't think about getting rich overnight. Be patient, take it slow, and steadily earn.