Since my investment strategy mainly focuses on short-term operations, there are relatively few people online dedicated to short-term trading, so opportunities for discussion are limited and in-depth discussions are even rarer. Looking back at 2021, I reaped considerable gains from short-term trading and recorded some insights. However, to this day, these insights seem somewhat outdated, and some views have updated with market changes. Yet, the motivation to rewrite the strategy is lacking, so I am posting the old text here, hoping it may benefit someone destined to read it.
1. Market Analysis
From my personal trading experience, the crypto market exhibits a pattern of extended bull markets and short bear markets, making it the easiest market to profit from. On platforms like Zhihu, I have witnessed the rise of many expert investors in the crypto space, who often accumulate wealth by capitalizing on large single-direction trends through continuous rolling positions. However, such success often comes with high risks; once the market turns, they may fall rapidly. As the wealth creation effect in the crypto market diminishes, such 'masters' may gradually return to obscurity. The bullish and bearish trends in the crypto market tend to be very strong and persistent; entering at the right trend leads to effortless profits. In earlier years, technical analysis indeed flourished in the crypto market, and trend judgment was relatively easy. However, as market thresholds have increased, the wealth creation effect is no longer as it once was. As a new and emerging market, the difficulty of profiting will certainly increase as it matures.
In the early days of the futures market, large single-direction trends were common, but in recent years, it has become increasingly difficult to grasp, which is an inevitable result of market maturation. Futures trading requires a certain level of professional knowledge, such as a deep understanding of specific products, knowledge of international trade, and a foundation in finance. This knowledge cannot be superficial but requires in-depth practice or frontline exposure. Of course, one can participate in trading without understanding these, but the ability to comprehend market dynamics will be relatively weak.
As for the large A market, its characteristic of long bear markets and short bull markets is particularly evident. Compared to other markets, it is especially difficult to profit during bear markets in the large A market, so I do not see it as a favorable investment target. In my view, the large A market resembles a 'chives harvesting machine,' where black swan events frequently occur, and technical analysis often fails. Fortunately, I did not start my trading career in the large A market, which allows me to examine different markets more objectively. In the large A market, stock selection is crucial; sector selection, individual stock picking, and operational strategies are interconnected. Picking the right stock requires luck, while picking the wrong one tests one’s operational mindset. Although the large A market is often criticized, its risks are indeed lower than those in the crypto and futures markets. If measured by the 'jumping off the building index,' the crypto and futures markets are undoubtedly much higher than the large A market.
The large A market is flooded with junk stocks, and sector rotation is often the result of large funds banding together to harvest chives. Therefore, even if the index rises, investors may not necessarily profit. In contrast, while there are fewer varieties in the crypto and futures markets, valuable coins and core assets are relatively concentrated. The U.S. stock market, although similar to the large A market, has a lower proportion of junk stocks and a more rational market structure. In trading within the large A market, excessive reliance on news often leads to losses. When faced with unpredictable sharp declines, the probability of investors making a profit is minimal. If one participates in large A trading solely for the sake of a bull market, I recommend giving up. The correct approach is to learn to survive in bear markets and avoid becoming a 'hard-headed kid' being harvested.
I once ventured into the U.S. stock market and found that fundamental analysis is indeed effective there. However, due to the influence of quantitative trading, technical analysis appears somewhat difficult, allowing only for grasping major trends for small-scale operations. I have also occasionally interacted with other trading varieties but have not delved deeply into them.
2. Trading Ideas and Techniques
Although different markets have varying characteristics, the underlying logic of trading is consistent. Adapting to market characteristics is a necessary lesson for every trader, and even seasoned traders must continuously pay tuition. However, the underlying trading system should remain consistent. The uniqueness of the large A market further convinces me that it is not an ideal investment target. Yet, the large A market also has its advantages, such as a slower pace and lower risk. In contrast, the futures and crypto markets are more likely to lead people to become addicted. Many individuals have a natural tendency towards gambling and can easily turn trading into gambling in high-leverage markets. The essential difference between trading and gambling lies in the driving factors: trading is driven by rationality, while gambling is influenced by emotions.
3. Fundamental vs. Technical Analysis Debate
Every investment target has its fundamental support, and long-term upward trends cannot be separated from this support. Theoretically, the U.S. stock market places greater emphasis on fundamental analysis, and fundamental strategies are indeed more likely to be profitable there. Although the large A market also has fundamental factors, stock prices are not closely related to fundamentals, being more a result of speculative sentiment. If one can hold for a long term (like 5 or 10 years), fundamental strategies remain viable. However, in the short term, luck plays a significant role. The larger the capital, the more stable the fundamental strategies. The crypto market has limited mainstream coins, and new coins often lack fundamental support, with their price movements being more dependent on institutional promotions, manipulations, and operational philosophies. Of course, breakthroughs in new technology can also drive overall progress in the crypto market, such as the rise of public chains like ETH and SOL. Fundamental analysis in the futures market focuses on a deep understanding of goods, but understanding fundamentals does not guarantee profitability; timing is equally important. In any market, fundamentals and investments may diverge in the short term but will inevitably converge in the long term. The effectiveness of value theory depends on the duration of the holding period, as many people's capital is insufficient to support long-term holdings. Therefore, choosing a trading style that suits oneself is crucial. Blindly adhering to value theory while engaging in short-term trading or forced long-term speculation can lead to losses.
Technical analysis is the refuge of most retail and amateur traders. All legitimate exchanges provide candlestick charts, making technical analysis the only tool retail traders can rely on. Technical analysis reflects the current market situation, but many technical traders can become obsessed, falling into a trap where theory cannot be practically applied. Most of the time, trends are clear, but minor trends and turning points are difficult to grasp. Long-term trading focuses on major trends, while short-term trading emphasizes minor trends. Medium to short-term trading typically combines major trends for position control, which is the foundational principle of technical trading. As trading experience accumulates, the distinctions between different trading schools gradually fade.
4. The Debate Between Short-term and Long-term Trading
I believe retail traders should master short-term trading skills, as they are the fundamentals of trading. Of course, not everyone needs to pursue short-term trading, but for smaller retail traders, it is crucial. Short-term trading in the crypto and futures markets can indeed yield substantial returns. I usually combine short-term with medium to long-term trading; the medium to long-term trend provides guidance for short-term operations, while short-term trading helps in understanding medium to long-term trends. Beginners should not blindly engage in short-term trading due to high friction costs. It is advisable to familiarize oneself with the market before attempting short-term trading. The advantage of short-term trading lies in rapid growth, accumulating experience through frequent operations and improving psychological resilience. After long-term leveraged trading in the crypto and futures markets, trading in the large A market feels like child's play.
Short-term trading presents two issues: first, it easily turns trading into gambling, leading to trading for the sake of trading; second, there are bottlenecks, with small profits and large losses becoming the norm. When conducting short-term trading in the large A market, it is advisable to diversify investments across multiple stocks to reduce risk. Short-term trading in the crypto market still relies on technical analysis, while short-term trading in futures is more challenging, and I usually opt for medium-term positions. After prolonged short-term trading, one may feel fatigued and unconsciously shift towards medium to long-term trading. This marks an improvement in trading level and correct identification of major trends. As for the definition of short-term trading, it varies by individual; I only focus on swing trading rather than time cycles.
5. Timing for Buying and Selling
As a normal trader, there should be clear reasons and signal bases for both buying and selling. Signals can come in various forms, even including dreams or metaphysical factors like I Ching. The key lies in the win rate of the signals rather than their rationality. New traders typically have a low success rate with signals and need to improve through continuous practice. My signal system integrates multiple factors including fundamentals, international trade, industry trends, and candlestick charts. Whether entering or exiting the market, one must strictly follow the signal system and regularly review and summarize experiences to improve signal accuracy.
6. Take-Profit and Stop-Loss Strategies
When a trend reverses, one should sell promptly instead of using stop-loss orders. Therefore, both take-profit and stop-loss orders are theoretically incorrect because they contradict the principles of signal-based trading. However, signals are often obscured by fluctuations, and operations are influenced by emotions. Thus, fixed take-profit and stop-loss points become effective means to avoid being trapped and incurring losses. Different markets and strategies require different methods for take-profit and stop-loss. In the crypto market during a large single-direction trend, I often hold positions waiting for price recovery; in futures trading, I decide whether to hold based on position and product type; in the large A market, I never hold positions but follow the trend. For investors who find it hard to decide, I recommend strict stop-loss orders to reduce risk.
Regarding take-profit strategies, I have advantages in trading across multiple markets, not fixating on the outcome of a single trade but rather looking for the next opportunity. Especially for short-term traders, take-profit and stop-loss orders are not difficult issues. However, investors in the large A market are particularly troubled by take-profit issues due to the scarcity of profit opportunities. Take-profit is a process of balancing risks; one can only choose one between profit and risk. With a first-mover advantage, operations will become more relaxed.
7. First-Mover Advantage
Having a first-mover advantage and profit mindset will make profitability and systematic operations much easier. Even if I claim not to hold positions, I might firmly hold onto them for high returns when I have sufficient initial profits. Of course, this involves position management strategies to reduce risk. In uniform markets like the crypto market, the risk of holding positions is relatively low; in the large A market, however, one must act cautiously and hold at least 3-5 leading stocks to diversify risk. In futures trading, I rarely hold positions, instead adopting a strategy that combines short and medium-term trading.
How to ensure a first-mover advantage? By accumulating experience through losses. Apart from extraordinary luck, most people will incur losses when they first start trading. Only after achieving profitability can one gain the first-mover advantage and maintain a good mindset for subsequent operations. The first-mover advantage means you can take on greater risks and achieve higher profits, which is one of the core secrets of trading: the more you earn, the easier it becomes to earn more, and the more you lose, the easier it becomes to lose even more. This is both a balance issue and a personality issue. Suppose you have 100,000 in capital and it drops to 20,000; you should start over from the 20,000 instead of obsessing over the 80,000 you lost. This helps cultivate a good mindset and avoids operational distortion. Learning to adopt a beginner's mindset is crucial for traders.
8. The Art of Position Management
The finer the position, the lower the profit, especially evident when trading in multiple markets. The solution is to lower profit expectations and achieve rapid capital growth through time and steady progress. I adopt a long-term light position strategy in any market, conducting medium to short-term parallel operations when a major trend arises to avoid missing the main market. The advantage of multi-market trading lies in having more opportunities; for instance, I rarely pay attention to the large A market, but when the crypto market's upward momentum is unclear, I will reduce my positions and shift to the large A market to capture potential trends. Futures trading has been temporarily shelved due to time constraints. Light and heavy positions are not a right or wrong issue but a strategic choice. Personally, I operate with a long-term light position, running away when I’m wrong and rolling over when I’m right to reduce risk. Normal traders consider stop-loss issues, while abnormal traders may blindly increase positions to prove their correctness. Many people fail in trading due to personality flaws.
9. Consideration of Win Rate and Profit-Loss Ratio
Since I mainly engage in short-term trading, it is challenging to maintain a high win rate. However, the win rate won't decrease indefinitely and will theoretically approach below 50%. Periods of consistently high win rates do exist, but market sentiment is cyclical, and the next cycle might need to start over. Based on personal trading experience, I do not overly emphasize the win rate because after a series of losses in light positions, catching a wave of opportunity can lead to a direct takeoff; conversely, frequent profits from heavy positions can lead to significant losses due to a black swan event. There is much debate online about win rates and profit-loss ratios, but in reality, it is not that important. If high win rates can be achieved, one should naturally pursue them to enhance trading frequency and profitability; however, the question is how high win rates are achieved? Increasing position strategies can raise the win rate but also increase risk, thus drawing attention to the profit-loss ratio. In fact, the profit-loss ratio is the key indicator reflecting the win rate, while other so-called 'win rates' are mere numerical games and not worth mentioning. If one cannot even understand this issue, they are not suited for trading activities.
10. Left-side and Right-side Trading Strategies
I believe that left-side trading requires talent, while right-side trading carries relatively lower risks. I engage in both; left-side trading generally occurs when I am preparing to hold positions, while right-side trading happens during uncertain trends. In fact, left-side trading requires more talent, while right-side trading is challenging to control for profit and often experiences pullbacks. Since I participate in trading across multiple markets, I tend to engage in left-side trading and can often spot lurking opportunities. However, the conditions for left-side trading are not simply that prices are low, but that the investment target has potential for upward movement. One should exit promptly if wrong, rather than stubbornly holding on. In this mindset, the difference between left-side and right-side trading is essentially about the signal system and trend judgment. However, not every trade can be clearly classified as left-side or right-side trading; sometimes, it is merely about taking advantage of signals for short-term arbitrage. It is advisable to distinguish between individual trades and related trades to reduce the probability of losses.
11. The Impact of Capital Amount
The amount of capital has an absolute impact on one’s operational mindset. Everyone has a threshold they can tolerate; if capital is too low, they cannot feel the pain of losses, while if it is too high, it can lead to technical distortion. After finding a critical point, it is advisable to cash out excess profits for security and trade with an amount one can tolerate. Economic theory states: if one cannot bear the risk of loss, then taking risks is meaningless. Many people's issues stem from their desire to rapidly expand their capital. The smaller the capital, the more patience is required; otherwise, one can only gamble on luck. Since 2018, I have never deposited any money and have always been withdrawing to accumulate profits.
Trading cryptocurrencies is about repeatedly doing simple things and persisting over a long time using a single method until it is mastered. Trading cryptocurrencies can become as second nature as in other industries, where practice makes perfect, allowing for swift and instinctive decision-making.
This year marks the seventeenth year of my cryptocurrency trading journey. I entered the market with 10,000, and now I sustain my family through cryptocurrency trading! It can be said that I have tried 80% of the methods and techniques in the market. If you want to treat cryptocurrency trading as a second career to support your family, sometimes listening and observing more can reveal insights beyond your current understanding, which can save you at least five years of detours!
Follow me to keep up with trends and get rich together! Together through bull and bear markets.
