Tianyi's teaching on stop loss > Supplementing positions and breaking even > Hedging
▶️ Everyone knows that stop loss is a cost of trading, but can you really stop loss strictly? When you are long and the price drops below expectations, will you supplement and then exit? If the average price after supplementation doesn't reach, and it continues to drop, you can only open a short hedge, euphemistically calling it locking in losses. Haha, I have only heard of locking in profits; locking in losses is a divine operation, truly admirable.
1️⃣ Stop loss
I have detailed the stop loss in my position management section, so I won't elaborate here.
2️⃣ Supplementing positions and breaking even
▶️ Supplementing positions and breaking even requires you to plan ahead before starting trading, not something you think of after opening a position.
▶️ For example, if there's a long strategy with a 100,000 position, 99,000 to supplement, and a stop loss at 98,000. This is a complete strategy with a stop loss of 1,500 points. After controlling the position, you just need to strictly stop loss, which does not count as supplementing positions to break even. Supplementing positions and breaking even means you don't want to stop loss at 98,000, you want to hold on. If you are sure it won't go below 90,000 and you plan to supplement at 93,000 to average up to 96,000 and exit, then you must consider these factors when you formulate your trading plan. First, control the liquidation price to be below 90,000. Second, how much position to enter at 100,000, how much at 99,000, and how much at 93,000. All these affect your liquidation price. What? You don't have a trading plan? What are you trading without a plan? If you're not the chives, then who is?
▶️ I usually do this only when trading spot, because spot won't lead to liquidation.
3️⃣ Hedging
▶️ If you have no trading plan and it is really unavoidable, you can only open a short hedge. Then when hedging, you know this is a last resort, so why didn't you choose one of the first two options at the beginning? You said yourself, aren't you the chives?
▶️ Hedging tests your psychological quality and trading level. Are you bullish or bearish? Where will you close your short position, and where will you close your long position? For example, if the price of the above strategy reaches 91,000, and you have already supplemented, with only 1,000 points left to stop loss, you panic and quickly supplement some USDT to hedge. Since the USDT from the supplemented short position is less than the long position, your liquidation price drops below 90,000. At this point, when you calm down, you realize, oh no, if the price goes up, your short position gets stuck, and if the price goes down, your long position gets stuck. That's right, you are a big fool.
▶️ So how to operate? First, you need to analyze and be certain in your heart that the price will not drop below a certain point. For example, if you are certain the price won't drop below 85,000, and your liquidation price is at 87,000, then you should gradually close your long positions until the liquidation price is below 85,000. Then predict approximately where it will rebound; for instance, predict a rebound at 87,000, and set your short position to take profit at 87,000. Once your short position takes profit, your liquidation price will rise above 85,000, and the rest depends on fate to see if it can really rebound. So after all this effort, what is the meaning of opening a hedge?
▶️ If I open a hedge, how would I do it? First, if I opened a long position on Bitcoin, I wouldn't open a short position on Bitcoin for the hedge, but rather on another cryptocurrency. I would split the two orders into separate strategies, executing two sets of take profit and stop loss. However, after improving my trading skills, I no longer use the term hedging, as I have already stopped loss long ago.
