The so-called 'strict entry and loose exit' simply means strict buying and loose selling.
Buying requires 'strict entry'
When opening a position, it must comply with our trading system's entry rules, including trading direction, entry signal, stop-loss, and profit target, aiming to have rational and well-founded entries that are thorough and strictly executed.
Selling requires 'loose' conditions
Once the price has moved away from the entry cost zone and has a certain profit margin, the selling conditions need not be too strict, allowing for normal price fluctuations. As long as there is no obvious reversal trend, there is no need to panic and exit.
The two principles of 'strict entry and loose exit'
First principle: Try to protect our principal from losses.
Misjudging the trend direction, not entering according to signals, setting stop-losses that are too small or too large, and trading frequently against entry rules can easily lead to trading failures, resulting in loss of principal. Therefore, it is essential to protect the principal before discussing profits.
Second principle: Hold on to profitable trades as much as possible and let the profits run.
Trends operate in a wave-like manner, and price fluctuations also need to breathe. Therefore, our stop-loss should not be too tight; otherwise, we might be scared off by pullbacks or stopped out and miss the trend.
'Strict entry and loose exit' mainly differs in the setup of stop-losses. Next, we will discuss the stop-loss techniques of 'strict entry and loose exit'.
First, we divide 'strict entry and loose exit' into two phases:
First phase: 'Strict entry' phase.
Second phase: 'Loose exit' phase.
'Strict entry' phase is our entry phase, where stop-loss setups will be strict, while the 'loose exit' phase is where we track trends and exit, with stop-loss setups being relatively loose.
In these two phases, there are four commonly used stop-loss settings:
1. Signal stop-loss
2. Structural stop-loss
3. Three-line stop-loss
4. Breakeven stop-loss
Signal stop-loss, based on the candlestick patterns of trading signals.
Structural stop-loss, using significant key nodes of the price trend structure as stop-loss points. These structural points are generally significant swing lows and highs in the trend.
Three-line stop-loss uses the three most recent closing candlesticks, selecting the lowest price among the three as the long stop-loss point or the highest price as the short stop-loss point.
Since the trend structure is greater than the candlestick pattern, structural stop-losses are generally more reliable than signal stop-losses and three-line stop-losses. Therefore, it is preferable to choose structural stop-loss as our main entry stop-loss.
Breakeven stop-loss means moving the stop-loss line to our opening entry point, ensuring that the principal is not lost. This type of stop-loss is generally chosen after the price moves away from our cost zone and has a certain profit margin.
Combining the characteristics of price trend operations, generally, in the latest price trend, candlestick patterns should precede structural trends. Therefore, in the 'strict entry' phase, we usually adopt signal stop-loss, three-line stop-loss, and breakeven stop-loss, while in the 'loose exit' phase, we mainly use structural point stop-loss.
So the question arises: how do we differentiate whether the current price trend is in the 'strict entry' phase or the 'loose exit' phase?
The 'strict entry' phase mainly refers to our entry phase. Assuming we are going long, after opening a position, if the first latest structural low point has not formed, it is still considered the entry phase. Generally, the latest structural low point is established only when the price breaks through structural high point 2. The range from structural low point 1 to structural high point 2 is considered the 'strict entry' phase, while the price movement breaking through structural high point 2 is classified as the 'loose exit' phase, indicating that structural high point 2 is a boundary point.
Next, we will deepen our understanding of the stop-loss techniques of 'strict entry and loose exit' through case studies.
Enter a long position at the closing of a bullish engulfing signal, with the stop-loss set below the lowest point of the signal. Since structural low point 1 is close to the signal, we can also choose to set the stop-loss below structural low point 1 as the best option.
When the price reaches K3, having already moved away from our opening cost zone and with a certain profit margin, we will consider moving the stop-loss to the opening price or using a three-line stop-loss to move the stop-loss line below the lowest price of K1. This type of stop-loss will be relatively aggressive and may easily stop us out, causing us to miss potential trends in the future. However, in the 'strict entry' phase, our goal is to ensure our principal is protected.
Structural high point 2 is the boundary between the 'strict entry' phase and the 'loose exit' phase. When the price breaks through structural high point 2, structural low point 1 is established as the first latest structural low point formed after entering. When the price enters the 'loose exit' phase, we move the stop-loss point to structural low point 3. Although the price may fall back from structural high point 3 and touch our stop-loss point, this is a normal price behavior, and there is no need to regret it. Subsequently, the bullish engulfing signal at structural low point 4 allows for re-entry to go long.
Enter long based on a bullish engulfing signal, with the entry signal stop-loss and structural point 1 being relatively close. We use the relatively conservative structural low point 1 as the entry stop-loss.
When the price reaches K3, having already moved away from our entry cost zone and with a certain profit margin, we can move the stop-loss to the opening point to breakeven or use the three-line stop-loss method to move the stop-loss below the lowest price of K1. This way, we can ensure that our principal is not lost while locking in some profit space.
When using the three-line stop-loss method, it is important to note: if the latest three candlesticks are only narrow small bearish, bullish, or star lines, there is no need to use these three candlesticks as a stop-loss, as it is easy to be stopped out. Ideally, at least one of the three candlesticks should have a certain amplitude and trade direction that is opposite.
When structural high point 2 is broken, it establishes the first latest structural low point 3 after entering, and the price also enters the 'loose exit' phase we defined. At this point, we can simply move the stop-loss below structural low point 3.
After moving the stop-loss to structural low point 3, we have preserved our principal and locked in some profit space. The future price trend is simply a matter of earning more or less, so it is unnecessary to tightly follow the price trend with stop-loss operations. We only need to track and observe the price trend, judging whether the trend is reversing and whether we need to reduce our position or take profits to exit.
In the 'loose exit' phase, reducing positions, taking profits, and exiting mainly focus on key trend reversal structure points and strong reversal signals. In the loose exit phase, if we closely follow the structural low points to move the stop-loss, it is easy to be stopped out, as the higher we go or in a consolidation area, the more likely the price is to temporarily break the latest structural low point, causing us to exit passively at a profit. Therefore, we should keep the stop-loss at key structural low points that are not easily reached by the price.
Returning to the gold case study, high point 4 did not break through high point 3, possibly forming a small M-top. The critical neckline of low point 4's small M-top, due to the relatively small amplitude of the range, is considered a secondary structural low point. When the price breaks below low point 4, we can consider manually reducing our position or taking profits to exit.
The price has dropped to low point 5 but has not yet touched our stop-loss point low point 3. Therefore, if we still have positions, we can continue to observe the price trend. High point 5 tests the resistance levels of high point 3 and high point 4 without breaking through. It only slightly breaks and forms a long shadow hammer line, which is a strong bearish reversal signal at this point, signaling for us to exit and take profits on our long position.
In conclusion, the trading philosophy of 'strict entry and loose exit' employs a relatively aggressive stop-loss during the entry phase, which somewhat goes against normal price fluctuation laws, but the aim is to ensure the safety of the principal as much as possible. The stop-loss strategy during the exit phase, in fact, is a way to follow the normal rhythm of price fluctuations, allowing for better trend capturing.
How to become one of the few who profit in the cryptocurrency market?
In the cryptocurrency world, there is a well-known '80/20 rule'. This rule tells us that in any set of things, the most important ones account for only a small part, about 20%, while the remaining 80%, though the majority, are secondary. In the investment field, this rule is even more vividly reflected: 20% of investors make money, while 80% lose money. So, how do you become one of the 20% who profit in this turbulent cryptocurrency market?
First, you need to have an in-depth understanding of the market. The cryptocurrency market is different from traditional investment fields; its volatility and uncertainty are much greater, requiring investors to have a higher risk tolerance and sharper market insight. Before entering the market, you must have an in-depth understanding of blockchain technology, the issuance mechanisms of digital currencies, market trends, etc. Only when you have a comprehensive understanding of the market can you remain calm amid market fluctuations and make rational decisions.
Secondly, you need to have a unique investment strategy. The volatility of the cryptocurrency market provides investors with significant opportunities, but it also comes with substantial risks. To become one of the few who profit, you need a unique investment strategy and should not blindly follow trends or listen to rumors. You can develop a strategy suitable for yourself by observing market sentiment, analyzing project value, tracking capital flows, etc. Remember, investing is a zero-sum game; only by being smarter and more perceptive than the majority can you stand out.
Moreover, you must have a firm investment belief. In the cryptocurrency market, investors often face various temptations and challenges, such as greed during market surges and fear during market crashes. These emotions often interfere with your investment decisions, leading to incorrect judgments. Therefore, you need to have a firm investment belief, trust your investment strategy, and not be easily swayed by market emotions.
Finally, continue to learn and accumulate experience. The cryptocurrency market is unpredictable, with new projects and technologies emerging constantly. To establish yourself in this market, you need to maintain a continuous learning attitude and constantly accumulate experience. You can enhance your investment skills and cognitive level by reading relevant books, participating in online courses, and keeping up with industry trends.
In summary, to become one of the few who make money in the cryptocurrency market, you need to have an in-depth understanding of the market, develop a unique investment strategy, maintain a firm investment belief, and continually learn and accumulate experience. Only in this way can you stand undefeated in the cryptocurrency market and become one of the 20% who profit.
However, it is also necessary to remind that investing carries risks, and one should be cautious when entering the market. While pursuing wealth, we must also remain rational and not blindly chase high returns while ignoring potential risks. After all, only stable investments can bring long-term gains.
In the investment process of all loyal followers, we not only provide investors with analysis ideas for market trends, basic knowledge for observing the market, and various investment tools' usage methods, but we also bring exciting fundamental interpretations, clarifications of chaotic international prospects, and distinctions of various investment influences.
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