First, let’s summarize: Rolling positions is a high-yield operation, but it also carries extremely high risks, so you must be cautious. The rolling position (exponential growth) + compound interest model is a cost-effective strategy. Note that rolling positions are exponential growth, and compound interest is a special manifestation of exponential growth. That is to say, all compound interest is exponential growth, but not all exponential growth is compound interest. Spot is the compound interest model, and futures are more like a linear growth model. . All in all, effective calls (unrealized profits) are the core of rollover and compound interest!
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Now let’s officially start talking about rolling positions.
5,000 principal, 10x leverage, a 100% increase, and the final profit is 5 million. This is a rolling position.
Adding to a position with floating profit is not rolling a position. Because the current definition and method of rolling a position in the market are all directly copied and pasted from the views of Fat House, Bit King, and Tony, it is still not easy to understand for novices with little investment experience. This article aims to explain it in a simple and rough way.
Assume that the current price of BTC is 10,000, and you open a position of 5,000 with a leverage of 10. At this time, BTC rises to 11,000, an increase of 10%. At this time, you make a profit of 5,000. OK, the next operation is very important.
1. The way to increase the position with floating profit is to add another 5,000. Then BTC rises to 12,000, and then rises by 10%. At this time, your principal and interest are 25,000. (Principal 5,000 + profit 5,000)
2. The method of rolling position is to close the previous position, including principal and profit of 10,000, and then open a position. Then BTC rises to 12,000, the same increase of 10%. At this time, your principal and profit is 20,000.
Does it look like there is no difference? But as long as you keep repeating the operation, when BTC rises to 20,000, the increase is 100%. The final principal and interest of the floating profit increase is 325,000 (including 50,000 principal). The principal and interest of the rolling position is 5.12 million (including 5,000 principal).
Why is there such a big gap? Let me analyze it together.
What is a complete position building cycle?
Open a position → Floating profit → Floating profit → Close the position
What is a complete cycle of adding to floating profits?
Open a position → Floating profit → Add position → Floating profit → Close the position
What is a complete rolling cycle?
Open a position → Floating profit → Close the position and then open a position → Floating profit → Close the position and exit
OK, let's extend two more concepts here, also in a way that is easy to understand. One is linear growth, which is 10%, 10%, 10%. The other is exponential growth, which is 10%, 20%, 40%, 80%. Linear growth is like when you step on the accelerator of a car, it is very stable from 10 to 20 to 80. Exponential growth is like the development of technology, which is an exponential growth, very slow at the beginning, and faster and faster later. Here is an imprecise example for easy understanding. According to conclusive evidence, it can be proved that humans were fully proficient in using fire 400,000 years ago, humans were fully proficient in using electricity 200 years ago, cars were about 100 years ago, the Internet was 55 years ago, and mobile Internet was 30 years ago. In other words, after electricity was proficiently used, human technology has developed rapidly. Compared with this, the previous 400,000 years seemed like a joke. I have gone off topic, let's get back to the point.
Let's make another analogy here:
Ordinary position building is linear growth. Strictly speaking, the contract is not linear, but let’s use this analogy for the sake of understanding.
Adding to a position based on floating profits means adding to a position on the basis of linear growth.
Rolling positions lead to exponential growth.
Below is a manually calculated chart for you to see intuitively. The 5000 circled in it is the principal added to the position due to floating profit.
At this point, do you think, wow! So simple! Isn't this the code to wealth? But in fact, the operation of rolling positions has a set of strict prerequisites, including fund management, stop-profit and stop-loss, and the most important prerequisite-a unilateral bull market. The biggest risk behind such high returns is that if there is a retracement of more than 10 points, you will lose all your money. But I personally think that it can be controlled through reasonable stop-profit and stop-loss methods. If you really encounter such a big market once every four years, you can use it.
Summary: Behind the high returns of rolling positions are also extremely high risks, so you must be cautious. The rolling position (exponential growth) + compound interest model is the most cost-effective strategy. Note that rolling positions are exponential growth, and compound interest is a special manifestation of exponential growth, that is, all compound interest is exponential growth, but exponential growth is not all compound interest. Spot is the compound interest model.
In the next article, I will analyze the application of the rolling position + compound interest model in the futures market, as well as the deeds of the Bit King. Why do I want to talk about the Bit King? Because I personally think that among the various great gods who have emerged in the last round of bull market, his operation method is very representative. An ordinary person with a small capital counterattacked from 40,000 yuan to 200 million in more than two years. I am keen on studying the legendary stories of these people, not for anything else, nor do I want to grasp the wealth code by imitating and copying them. Usually their deeds are not replicable. I simply think it is very interesting to taste the ups and downs of their lives, just like watching a good movie. If you can improve your trading skills and concepts during this period, it can be said to kill two birds with one stone. Isn’t it beautiful!
Updated April 1, 2024
Many friends say that the increase in the figure is based on 10,000. In fact, the 10% and 20% in the figure can be regarded as periodic increases, which are exactly the same in essence. It is just for a more intuitive and popular understanding of compound interest. If you want to see details, see the figure below.
The above analysis shows that the real meaning of rolling positions lies in compound interest, and the real meaning of compound interest is to fully mobilize unrealized profits, that is, the floating profit. The essence of the way that the Bitcoin King made 200 million from 40,000 yuan through leverage is compound interest thinking. Compound interest thinking is the only possibility to make a lot of money with a small capital. It is the only way! You make a few waves this week and lose a few waves next week. This kind of futures trading without any rules, let alone making a lot of money, it is difficult to even protect the principal.
Second summary: There are three points to make big money with a small capital: 1. Compound interest thinking. 2. Bull market. 3. Correct operation. If all three points are met, congratulations, this is the sufficient and necessary condition for making a big profit with a small capital!
Finally, this compound interest thinking also applies to spot trading, that is, 100% annualized rate, the same 5,000 principal, 6 cycles is 320,000. 11 cycles is 10.24 million, the details are in my other article.
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