80% of the teachers in the square are just talking nonsense, and the remaining 10% are pure leeks
Without position management, stop loss, and just mindlessly holding orders, how can it be called trading?
If I really like playing like this, I might as well buy lottery tickets... The ugly profit and loss ratio, the unattainable previous high profit stop point, and the fact that I can make money is purely luck, not trading.
Only by learning position management can you be called a qualified trader, always remember this
What is a transaction?
In contract trading, position management is as important as a man’s penis.
What is "trading"? The so-called trading is actually to make profits from the market by relying on one's own understanding of the market, using a high winning rate and high profit-loss ratio, and taking risks through opening and closing positions again and again.
Why do you need to learn position management?
There is a very important concept that must be understood first:
There is no strategy with a 100% winning rate in the world, and incurring losses will reduce the inherent capital and increase the difficulty of recovering the investment.
A 50% loss requires a 100% profit next time to recover the investment. What if the situation is more serious?
Assume that Xiao Ming still holds 100u of contract funds, but he experiences stop loss again, and the total funds are reduced to 10u, with an overall loss of 90%. At this time, if he still wants to get his money back, he must increase the next profit margin to 900%, which means that the funds in his hand will be multiplied 10 times, which is simply a fantasy! Therefore, before we make a profit, it is most important to ensure our ability to resist risks.
This is why we must constantly emphasize position management, because only by learning position management can we get rid of the trap and achieve stable profits. Otherwise, even if you turn over your position today, you will definitely lose all your funds one day in the future. Always remember that it is abnormal to make money too quickly or lose money too quickly! Profits and losses come from the same source!
So how do you manage your positions specifically?
Position Management
When many novices first start trading, they will hear others say not to use high leverage, but when they see others showing off their 200% profit charts in various groups, they can’t help but feel itchy.
Can we use high leverage in trading? After reading the following two points, you will have a deep understanding of the purpose of leverage as a tool.
The difference between “Full Margin” and “Isolated Margin”
Before we understand leverage, we must first be familiar with the difference between full position and isolated position. The difference between full position and isolated position is actually only in the margin calculation method.
(For details, please go to the Binance contract interface and will not be repeated here)
If you still don’t understand after reading this, here is an example:
Xiao Ming currently holds 10,000USDT in total funds. He now takes out 1,000USDT as a margin.$BTC When the trading pair price is 30000, a 100x long order is opened. At this time, the market fluctuates and the $BTC trading pair drops by 2% to 29600. At this time, the following differences will appear between cross position and isolated position:
1. Full position: The floating loss of the position is 200%, and the floating loss value is 2000USDT. The system uses 1000USDT from the contract funds plus the original 1000USDT to bear the floating loss.
2. Position-by-position: When the floating loss of a position exceeds 100%, the position-by-position margin is exhausted and the system forces the position to be closed (exploded).
After reading this example, it should be easy to understand. Translated into plain language, it is:
1. Full Position:
1. All positions share the same margin. If the margin of a position is completely lost, other funds in the contract account will be used to temporarily fill the gap.
2. It can withstand a large degree of floating loss, but the contract funds will be directly reduced to zero when the position is liquidated.
2. Single position:
1. All positions have independent margins. If a position’s margin is completely lost, the position will be liquidated directly without using other funds.
2. The ability to bear risks is relatively small, but the advantage is that other funds will not be affected when the position is liquidated.
After reading the above explanation, you may think that it is safer to use isolated leverage to trade compared to full leverage. But is this really the case? What does this have to do with "try not to use high leverage"? Before answering these questions, we need to understand how the position value is calculated.
Position Value
First, let us give you a very simple formula:
Position value (notional value) = position margin * leverage
This means that today, as long as we operate with a fixed position value, no matter how large the leverage is, the behavior of the two positions is exactly the same. For example:
1. A long position uses 1$USDT margin with 100x leverage, worth 100USDT.
2. B's long position uses 100$USDT margin with 1x leverage, worth 100USDT.
When the market drops by 1%,
3. A's long position has a floating loss of 100%, worth 1USDT.
4. B’s long position has a floating loss of 1%, worth 1USDT.
It can be seen that although the percentage of profit and loss of the positions is different, in fact, the losses suffered by the two are exactly the same (the same is true when they are profitable).
So leverage is actually just a false issue. As long as we are not holding long-term positions today, we can completely increase leverage and reduce margin to trade (long-term positions must take into account funding rates).
Why do we still see some people discussing the disadvantages of high leverage? Because most novices often use the position-by-position leverage mode when they first come into contact with contract trading. When using position-by-position leverage, as long as the floating loss of the position exceeds 100%, the system's forced liquidation mechanism (explosion) will be triggered. That's why some people suggest that novices should not use high leverage for trading. Therefore, when we discuss trading positions, we must discuss leverage and margin at the same time.
Only then is it meaningful.
Position Management
After understanding the true meaning of position value, we can start discussing how to manage positions.
As mentioned before, "trading is about taking risks to gain profits", so now we have to learn how to manage risks. Generally speaking, we recommend following the following two principles:
Fixed stop loss percentage: In trading, we often have the opportunity to hold multiple currency strategies at the same time. We can fix the stop loss of each strategy at a fixed percentage.
Example:
Xiao Ming currently holds a total of 1000USDT. He thinks that this amount of money is not large, so he can adopt a more aggressive approach. Then Xiao Ming can fix the stop loss percentage at 5%, which is 50USDT. The advantage of doing this is that the risk of each strategy can be fixed to avoid the restrictions brought by the stop loss.
2. Set a margin cap: In contract trading, we need to keep a fixed amount of funds as margin, and at the same time use it to resist the risk of stop loss. I personally recommend that each strategy should not use more than 10% of the total funds as margin. After understanding the above two principles, we still need to discuss one thing: how to evaluate risks?
Generally speaking, we will refer to the full position multiple to assess the risk of the position, that is:
Position multiple = total value of positions in hand / total contract funds in hand
For example, Xiao Ming currently holds a total contract capital of 1000 USDT, but the total value of his contract positions is approximately 2000 USDT. At this time, Xiao Ming's position multiple is "2 times the full position".
Because in contract trading, many altcoins will actually follow the fluctuations of $BTC $ETH , and altcoins can actually be regarded as Bitcoin or Ethereum with leverage, and the fluctuations are greater, so we would recommend that when trading, the position multiple should not be increased to more than 3 times the full position, which would be a better way to control risks.
