In the cryptocurrency circle, many people harbor dreams of financial freedom but often fall into the dilemma of 'heavy positions when the price drops, large losses when making small profits.' Others can navigate the cryptocurrency circle with ease, while you are repeatedly cut; the key lies in whether you have mastered the core skill of position management. Good position management means you have already outperformed the vast majority of investors.
Whether in spot or contract trading, position management directly determines the strength of risk control, the average holding price, and the final returns. It is the most important aspect besides judging direction and maintaining mindset.
When trading cryptocurrencies, you need to solve five key questions: What coin to buy, when to buy, how much to buy, when to sell, and how much to sell. Among them, 'how much to buy' seems simple but is the core determinant of whether you can profit. Those who make a fortune in a bull market rely not only on luck but also on the position management that is the key to making money.
I. The Connotation of Position Management
Position management refers to a specific set of plans formulated for opening, adding, reducing, and clearing positions when deciding to trade cryptocurrencies. It is an important means of risk avoidance, aiming to minimize losses and maximize benefits.
A key reason many traders fail is treating market analysis as the entirety of trading, believing that analyzing the market can determine victory or defeat. In fact, market analysis is just the foundation; what really determines success or failure is the operation after entering the market, which is precisely within the scope of position management.
Position management includes fund management and risk control; its core is not just the surface term 'position,' but clearly defining when to add, how much to add, when to reduce, and how much to reduce. It is a complete roadmap of 'entry, adding positions, reducing positions, exiting.'
II. Three Practical Position Management Methods
1. Rectangle Position Management Method: 'Stabilizer' for Volatile Markets
Divide funds evenly into three, five, or even ten equal parts, investing the same amount for each position. This method is very useful when you are uncertain about market trends. In a volatile market, gradually increasing positions with fixed amounts can help spread risks, allowing you to establish a solid footing in the cryptocurrency circle.
2. Funnel-type Position Management Method: Essential 'tool' for bottom fishing
Also known as the inverted pyramid management method, dividing the position into 5 parts from bottom to top, with the ratios of 10%, 15%, 20%, 25%, and 30% respectively. If you judge that the market will decline for a long time, you can enter the market with a small amount of funds at the beginning of the decline, with sufficient funds to add positions in subsequent declines. For example, if the current net value is 65000, you can set to add 10000 when it drops 10%, 20000 when it drops 20%, and so on until the market rebounds. Note that the intervals for adding positions should not be too close to avoid exhausting funds prematurely; this is a good method for left-side trading bottom fishing.
3. Pyramid Position Management Method: 'Wealth Amplifier' in Bull Markets
The opposite of the funnel type, where a large amount of funds is invested at the beginning, gradually reducing the proportion of additional investments as the market rises. This method is suitable for right-side trading when the market forms an upward trend. When a bull market comes, establishing a profit foundation with substantial chips and then cautiously adding small amounts later. As the old Wall Street adage goes: 'In a bull market, the most important thing is to hold your chips until a significant reversal signal appears.'
There are no absolute good or bad methods; you need to choose based on your judgment of the market. Regardless of which method is used, always keep some liquid funds to respond flexibly to changes.
Investment reflects cognitive ability; do not think about 'full position to get rich overnight,' nor always 'light position holding' out of fear. True experts can control positions, learn position management, and avoid easily using leverage, full positions, or empty positions, thus escaping the fate of being a retail trader and starting the path to profit.
III. Six Basic Principles of Position Management
Do not operate with full positions; always keep a certain proportion of standby funds.
Batch buying and selling reduces risk, dilutes costs, and amplifies returns. Buying in batches downwards and selling in batches upwards allows you to have a lower average price and higher returns.
In a weak market, hold lightly; in a bear market, positions should ideally not exceed fifty percent; in a strong market, you can moderately increase positions; in a bull market, the maximum position should be around eighty percent, keeping the remaining 20% as short-term operations or emergency funds.
Adjust positions accordingly as the market changes, adding or reducing positions as appropriate.
During a weak market, it is advisable to stay in cash temporarily and wait for opportunities.
When changing positions, retain strong coins and sell weak coins.
The above principles apply to both spot and contracts and should be studied repeatedly for comprehension.
IV. Complete Trading Process
Market Analysis: Any technical analysis method can be applied.
Position management: After entering the market, consider whether to add positions, take profits, or continue holding when profits expand; when in losses, whether to stop losses, hold the position, partially exit or completely exit. Position management must balance both risk and return.
Strictly execute trades: Once the plan is clear, implement it without being disturbed by market fluctuations.
Summarize trading: After completing each trade, review the trading over the previous period, with samples covering up, down, and volatile market states, thus optimizing market analysis, position management, and execution processes.
After finding the entry point (support line), if the market is above the support line, it is an upward trend; if it breaks below, it is a downward trend. The support line also serves as a basis for defining potential risks; set the stop loss below this line, and the risk range is already determined. If the initial stop loss area is touched, you should first exit or close a large part of your position, then gradually decrease your position as the market falls.
Potential returns are above the support line; as long as the upward trend has not ended, theoretically, the returns are unlimited. After entering the market and rising, you can hold the original position or gradually increase it, and move the stop loss according to market changes. When the market develops as expected, move the stop loss to near the cost price or below a certain distance from the support line to lock in floating profits.
When the price rises to a new support or resistance level and then falls back, the area below that position is the area for reducing positions, and you need to gradually liquidate all positions. In summary, find the support and resistance line at the cost price; as the price rises and moves away, gradually increase the position; as it drops and moves away, gradually decrease the position. Position management techniques must balance risk and return.
V. Methods of Batch Operation
Batch operations involve dividing funds into segments, building positions, adding, or reducing them in batches, which can be completed within a day or over a period.
The reason for batch operations is that the cryptocurrency market is unpredictable, and no one can accurately predict short-term fluctuations; sufficient funds must be reserved to deal with unexpected situations. If you operate with full positions without full confidence, market reversals can lead to heavy losses. Batch operations can reduce the risk of full investment, dilute costs, and form the basis for reducing costs and amplifying returns.
Batch methods are divided into equal batch and non-equal batch:
Equal Distribution (Rectangle Buying and Selling Method): Divide funds into several equal parts, each time buying or selling the same proportion of funds, usually in 3 or 4 equal parts. For example, buy 30% first, then buy 30% after making a profit; if no profit is made, do not invest further; when the price reaches a high point or the market changes, gradually reduce positions and sell.
Non-equal distribution: Buy or sell in different ratios, such as 1:3:5, 1:2:3:4, etc., with shapes like diamonds, rectangles, hourglasses, etc., commonly using pyramid-type buying and selling methods.
Comparing different methods under equal funds and positions:
Pyramid: Buy 5 layers at 1000, 3 layers at 1100, 1 layer at 1200, average price 1055.
Inverted Pyramid: Buy 1 layer at 1000, 3 layers at 1100, 5 layers at 1200, average price 1144.
Equal Rectangle: Buy 3 layers at 1000, 3 layers at 1100, and 3 layers at 1200, averaging 1100.
When the price rises to 1200, profits are 145, 56, 100 respectively; when the price drops to 1000, losses are +55, -144, -100 respectively. It can be seen that the pyramid type has the lowest cost, making higher profits during rises and stronger risk resistance during declines; the inverted pyramid is the opposite. In practice, using the upright pyramid for buying and the inverted pyramid for selling is more reasonable.
After a significant drop in price, if you are unsure whether it has hit the bottom and are worried about being trapped or missing out, you can use the pyramid position building method. For example, when a certain coin drops to 10U, buy 20% of your position; when it drops to 8U, buy 30%, averaging a cost of 8.6U; if it drops to 5U, buy 40%, averaging a cost of 6.5U. If the price rebounds to 6.5U, you break even, and if it rebounds to 10U, you gain 3.5U, while if you had fully invested at 10U, you would only recover at 10U.
When the price rises, the lower the price, the larger the position bought; the higher the price, the smaller the position bought. This is right-side position building, with relatively safe costs; as long as it does not fall below the cost of holding, there is no need to panic. This method starts with a heavier position and requires a higher standard for initial entry, suitable for technical players.
The inverted pyramid selling method is the opposite of the upright pyramid; when the price of the currency rises, the selling quantity increases with the price for reducing or clearing positions.
Understand the core of position management, and you will have ideas for building positions in spot and contracts.
VI. Practical Training
Spot Position Management
If you have 100,000 U, divide it into 10 parts, preparing to buy 10 coins, allocating 10,000 U for each, with the same amount for each entry. For example, when building a position in a certain coin, according to the standard of 10,000 U per coin, enter with 5,000 U at a certain price, reserving 5,000 U for additional purchases.
A major taboo in spot trading is to heavily invest in coins you are optimistic about and lightly invest in those you are not. For example, if you heavily invest 30,000 U in a certain coin and it loses 10%, that's 3,000 U; if you lightly invest 10,000 U in another coin, even if it rises 10%, you only gain 1,000 U, resulting in an overall loss.
Contract Position Management
ETH position calculated by quantity:
1000U principal can hold a maximum of 5
3000U principal can hold a maximum of 10
5000U principal can hold a maximum of 20
10000U principal can hold a maximum of 30
30000U principal can hold a maximum of 50
50000U principal can hold a maximum of 100
BTC position calculated by quantity:
1000U principal can hold a maximum of 0.5
3000U principal can hold a maximum of 1
5000U principal can hold a maximum of 2
10000U principal can hold a maximum of 3
30000U principal can hold a maximum of 5
50000U principal can hold a maximum of 10
Contracts and spot trading are the same; every order has the same initial principal and number of orders, executing profit taking and stop loss as required, like a trading machine.
VII. Several Suggestions for Successful Trading
Technical Analysis: Includes technical indicators, candlestick patterns, trading volume, etc. You need to master trend judgment, bull-bear differentiation, and grasp buying and selling points, which vary from person to person.
Fundamental Analysis: Focus on macroeconomics, policies, regulations, and the projects themselves.
News: Combine negative and positive news, operating when the news and fundamentals are good.
Time Period: Clarify trading cycles such as intraday short-term, medium-short-term, and medium-long-term, maintaining consistency; for example, long-term trading should not frequently involve short-term operations, and bear the intermediate adjustment fluctuations.
Mindset Control: Once the plan is made, implement it resolutely without compromise.
Strict Stop Loss: Stop loss is preparation for the worst-case scenario; when the market reverses, stop loss and escape the peak without hesitation.
Super Brother will continuously monitor the market, guiding fans to position in spot or contracts at suitable points. There are plenty of opportunities in the cryptocurrency circle; it depends on whether you can seize them! Opportunities do not wait for anyone; if you want to make gains, quickly follow Super Brother's lead!
