I position myself as an ordinary trader with average qualifications. I am writing down some of my insights on trading, and I have no intention of guiding everyone to become a master, because I myself cannot be considered a master either. What I want to do is to share my opinion on how an ordinary investor with average qualifications and no advantages in terms of funds and information can survive in the speculative market.
Everyone wants to become a master of the throat sealing technique, and I myself am no exception. I have also made efforts to study market forecasting theories such as wave theory and Gann theory, researched almost all popular technical indicators, collected all available economic data, and used all available macroeconomic models for basic analysis, but none of them had much effect. All of these prove that I am indeed not smart enough and my qualifications are too mediocre. In the end, I had to give up and instead use the simplest and easiest to understand methods to guide my operations.
I would like to reiterate that I am not an expert, and I dare not look down upon those mysterious market forecasting theories. It’s just that I really don’t understand them and don’t know how to apply them. But I also want to survive in the speculative market and earn profits that are tempting to me, so I have to resort to some equally foolish methods. Please show mercy to the true masters.
Below, I will share my views on the essence of trading, why a trading system is needed, why stop loss should be implemented, how to stop loss, the choice of trading system, and trading psychology.
What is a transaction?
I personally think that trading is gambling, in a sense, even worse than gambling (because the probability of winning money from gambling may be higher than the probability of successful trading). There is nothing wrong with gambling itself, and similarly, there is no right or wrong with trading itself. Those who have lost everything due to gambling or trading should blame themselves.
Why? Because they underestimate gambling and trading. Don’t have any preconceived notions about gambling. In fact, there is a lot of knowledge involved. Many of my own insights came from a friend who was banned from entering the local casino. This guy treats gambling like an ATM. However, I am not his family member, and he did not and will not tell me how he operated specifically. But I know he definitely did not rely on cheating, and our casual conversations have been very helpful in forming some of my current opinions.
In the eyes of most people, gambling is much simpler, it’s just a selective bet that doesn’t require much brainpower. The transaction is also simple, just buy and sell. But in reality? Whether it’s gambling or trading, they are both the most thought-provoking things in the world. However, if you use your brain in the wrong place.
To put it simply, trading is also a form of gambling, despite being adorned with many colorful garments. Whether you view your trading behavior as investment or speculation, it cannot change the fact that you are gambling.
Why don’t we just go gambling and work hard to make deals? One of the reasons is with my friend. No matter how much profit I earn in trading, I will not be prohibited from entering any trading venue. Another reason is that we cannot achieve “cutting off losses and letting profits run” in gambling. In gambling, every loss is a certain amount, and every profit, no matter how high the odds are, is also a certain amount. In trading, you can control your losses and earn profits that no casino in the world is willing to accept based on odds. Leaving aside other factors, these two points alone determine that trading is more popular among professional gamblers than casinos.
For me, the idea that accepting transactions is actually gambling has several benefits:
- Don’t spend too much time on other things, such as technical analysis and basic analysis. These tools can only provide me with a certain degree of help, and no matter how proficient I am in them, I cannot fundamentally improve my trading performance. Therefore, a general understanding of these tools is sufficient, without excessive specialization.
- I will be more open to accepting failed trades and more willing to accept the losses they bring. No professional gambler wants to win without losing. He knows that in order to ultimately win money, losses are essential. Only losses can bring profits, this is the game rule of casinos, and it is also the game rule of the market. Those who violate the rules of this game will ultimately be kicked out of the game.
- The ultimate outcome of gambling is determined by probability, so the certainty that determines the ultimate outcome of trading is also probability. After understanding this point, the next thing will be much easier to handle.
Why choose a trading system for trading?
Since we know that the final outcome of a transaction depends on probability, the first thing we need to do is naturally find a way to know this probability. If you don’t even know the probability of making a profit in the market, I advise you to leave as soon as possible. To know this probability, you must use the same measurement criteria to make sense. To know the probability of flipping a coin with both positive and negative sides, you need to constantly toss the same coin in order to draw meaningful conclusions.
What we need to do next is to adopt this trading system in order to know some data related to probability. You can also use historical data, but when using historical data to calculate the probability data of the trading system, do not involve any technical indicators in the end, because there is a huge difference between the technical indicators that are currently being formed and those that have already become historical data.
The indicators that become historical data are what they are, and the emerging technical indicators are constantly changing with changes in market prices. This is also the main reason why some rules that rely on technical indicators to enter and exit the market can be considered perfect when testing historical data, but once used, their effectiveness is greatly reduced. I think for a trading system that uses historical data for calculation, it is best to only use the closing price, K-line pattern, and at most add the moving average system for trading signals.
As for the time frame adopted by the trading system, it is up to personal preference and there is no need to force it. The calculation trading system should try to use all trading signals as much as possible, and do not deceive yourself in this process, because your future speculative decisions will mainly rely on it. The minimum number of transactions to be calculated should be 100, and a small number of transactions does not indicate a problem. The trading unit is 1 unit. The data you need to obtain includes: transaction success rate, average profit per successful transaction, average loss per failed transaction, and overall average profit or loss per transaction, which is the expected value per transaction. If the expected value of each transaction is a certificate, continue. If the result is negative, it indicates that there is a problem with your trading system settings and needs to be adjusted.
The first priority of adjustment is to minimize the losses of each failed transaction and increase the profits of each successful transaction. Don’t pay attention to the success rate of transactions. If no matter how you adjust it, the expected value of each transaction in the trading system cannot become a positive number, you will have to give up on it. Choosing from existing mature trading systems is also good, but you still need to test it yourself. The main purpose of measuring a ready-made trading system is not to see if it is still effective, but to make yourself believe that it is indeed effective and have a clear understanding of your long-term potential for profitability.
For example, if the expected value of each transaction in a trading system is $5, it means that in the long run, each trade can bring a profit of $5. Please note that this is only an average value. How can you make your actual trading results fully approach this average? Probability theory tells us that the more times you trade, the closer the actual trading results are to the average. This means that the longer one obtains in the market, the better. As the saying goes, ‘Long term gambling leads to victory’.
Probability theory also tells us that probability is not uniformly distributed. Taking coin flipping as an example, although the probability of any side appearing is 50%, it does not mean that if there is no positive side, there will be a corresponding negative side, or that every 10 times, the number of positive and negative sides appearing is always 5:5. Probability only tells us an average, an average that is repeated many times. During the process of flipping a coin, it is possible to have 10 or even 20 consecutive positive or negative occurrences, and the likelihood is high.
Therefore, as a speculator, if you want to survive in the market for the long term and move your expectations in a favorable direction, you must learn to stop losses and control losses. The true meaning of controlling losses is to cope with the continuous occurrence of unfavorable situations. For example, if your trading system sends out an average of 40 trading signals per month and you set a maximum loss of 20 points, then theoretically speaking, the maximum loss you may experience in a month is $800, meaning that all 40 trading signals fail, and the maximum loss for each failed trade is 20 points. So, using $850 to trade one can basically be said to be absolutely safe.
However, finding a 100% failed trading system is not that easy. Based on my experience, the likelihood of 20 consecutive trading failures is not very high, but it is quite common to experience more than ten consecutive failures. The purpose of emphasizing light position trading is probably to leave a reserve force for your future counterattacks. When I use my mini account for trading, I trade 1 mini slot for a fixed amount of $500, and for every $500 increase in profit, I trade 1 mini slot more (without the need to increase positions). Perhaps the utilization rate of funds is not high, but I know that only by doing so can I possibly survive in the long run.
I have also seen many people talk about probability online, but most of them talk about the probability of a certain operation being successful. And the probability I understand is the overall probability of the entire transaction behavior. Don’t get entangled in a single transaction, focus on the overall probability. Probability theory tells us that overall returns depend on the product of the expected value of each transaction and the number of transactions. That is to say, while keeping the expected value of each transaction constant, my overall return is proportional to the number of transactions.
Of course, some people may argue that you can achieve the goal of increasing expectations by reducing the number of failed transactions, which can also improve overall efficiency. This is indeed an ideal approach, but unrealistic. I can reduce the frequency of losing trades by adding some restrictions, but the risk I take for this is losing trades that can bring me substantial returns, which is the last thing I want to see. To bear failed trades is to seize the price that must be paid for a highly successful exchange.
In fact, every time I make a transaction, I am very clear that the success rate of this transaction will not be too high, because my overall transaction success rate is not high, failure is normal, and success is abnormal. Therefore, when I accept the fact that the probability of failure in every transaction is higher, I will try my best to control the losses. My biggest concern in every transaction is to minimize losses as much as possible, and minimizing losses is the key to victory. Strangely, once you focus on how to reduce losses, profits come uninvited.
Why should we accept the concept of stop loss
I think accepting the concept of stop loss is something that a trader, especially an ordinary trader, must do. The specific application can vary from person to person and time to time, but this concept must be accepted. Refusing to accept the concept of stop loss is an attempt to become a perfect trader, a god of victory in every battle. Is there such a person in the speculative market? Absolutely there is. But if you position yourself as an ordinary person, you just need to admire them, don’t learn to do it. A divine being cannot be possessed by anyone.
Some traders refuse to stop losses, and their reasons seem very reasonable, which are: the money others earn is the money you stop losses, so you cannot stop losses and cannot let others take away your money. I remember in the early 1990s when I first started trading stocks in China, one of the main reasons why we retail friends refused to cut meat was: never cut meat, because the money earned by the market makers was the money you cut meat with. I remember when I made this declaration in the retail investor hall, it received warm applause from the vast number of retail investors, and it is still unforgettable to this day. Logically speaking, this reason is absolutely correct. But this world is like that, what is theoretically correct may not be feasible in the real world. Here, I don’t want to repeat those clich é s that emphasize stop loss, I just want to talk about the significance of stop loss for the normal operation of the entire market in my eyes.
Assuming that everyone insists on not cutting losses and has enough funds to support themselves, what would the speculative market look like? It’s definitely a stagnant pool of water! The market simply cannot function. The profit on the books can make you feel happy, but it cannot help you survive in the real world.
If that were the case, the speculative market would no longer exist. Therefore, participants in the speculative market must cut losses in order for the market to become active and have liquidity. Since traders have entered this market, they must accept the game rules of this market. The inherent operating mechanism of the speculative market will inevitably impose ruthless punishment on those who fail to stop losses, as such behavior poses a threat to the health of the speculative market itself.
In my opinion, after such a long period of operation, the speculative market has already formed an effective internal mechanism to punish those who refuse to accept the rules of the game. Currently, this mechanism is very effective, and its basic operating mechanism is that no one in this world has enough funds to support their stubborn behavior. Although there may be a few missed opportunities, the probability of this happening to ordinary people is probably even smaller than the probability of winning the lottery. As a rational ordinary person, insisting on choosing a low probability event does not prove how smart you are, but only shows that you are indeed crazy.
As an ordinary speculator, you should unconditionally accept the concept of stop loss. This is not a matter of whether you are willing or not, but a prerequisite for entering this market and surviving in the speculative market. Your act of entering the market itself is agreeing to the game rules of stop loss demanded by the market. Cheating can be successful for a while, but it is difficult to show off for a lifetime. Refusing to stop loss is a breach of contract, and being punished is reasonable and justifiable.
So, in my opinion, the rational choice for an ordinary speculator to rent out should be a smart stop loss, a quick stop loss. Try to make other traders stop the loss by a larger amount and delaying the stop for a longer period of time. In a zero sum game, it’s not about who is more correct than others, but about who makes fewer mistakes and causes less loss after making them. Those who refuse to cut losses belong to the opportunists of this game, and the vast majority of them will end up in a miserable situation.
Stop loss is largely a psychological issue rather than a technical one, as it can help you build confidence to survive in speculative markets.
In fact, speculation itself is also a psychological issue. In my opinion, overcoming oneself means overcoming the various psychological barriers that speculation brings to traders. The speculative market is a martial arts world. Surviving in the martial arts world does not necessarily require becoming a top expert, but regardless of your identity in the world, you must understand yourself and have corresponding survival skills. What the world of rivers and lakes is in your eyes, it is what it is.
What is the speculative market in your eyes, it is what it is. As long as your actions do not conflict with your understanding, that’s enough. If you think that only with high martial arts skills can you establish a foothold in the martial arts world, then go and cultivate kung fu; Do you think that interpersonal relationships are the foundation of wandering the world, so go and build a good relationship with others; If you think that seeking refuge with the government is the only way out, then go and seek refuge with the government. Whatever you do in the martial arts world, as long as you have strong beliefs and persist, you will always achieve something. Speculation is the same. You must have a belief that supports your survival in the speculative market. I’m talking about probability, just to tell you that it’s the belief that supports me. The key to whether it can become a belief that supports you is not whether it is truly effective, but whether it is effective for you.
Both basic analysis and technical analysis have their merits. What you need is this desirable aspect. In the speculative market, every method has its merits, and there is no perfect panacea. If you like to follow trends, you must always follow them. In the stage when the market has no trend, you must accept the losses that this operation method brings you. If you like to trade in intervals, you should keep trading in intervals and also accept the pain caused by the trend.
In specific operations, as long as you strictly control the risks, it is enough. Do not attempt to follow the trend in a trending market, and sell high and buy low in a range market to create a price difference. Don’t you think this idea is too perfect and almost impossible to implement? In this world, in order to obtain something, one must give. Enduring the pain of being repeatedly deceived by breaking through in the regional market is the price of enjoying the happiness brought by following the trend and succeeding. The only thing you can do, the only thing you can completely decide for yourself, is to correct your mistakes as soon as possible and minimize the losses caused by them. Since this is the only thing you can do, why don’t you try your best to do it well?
I often see people online showing their trading records with a winning rate as high as 90%, or even 100%. It is indeed enviable. But I can’t do it, I’m afraid I won’t be able to do it in my lifetime.
I would like to disclose my trading performance in the first half of this year (calculated based on 1 mini mouth):
Total number of transactions: 305 times;
Total transaction success rate: 30%;
Average profit per transaction: $4.79.
Can you see how low my trading success rate is? It’s still an average. In my worst month, my trading success rate was only 17% (with an average loss of $33 per trade). In the past month of July, the trading success rate was only around 20%, with an average loss of $122 per trade. Even with such a low trading success rate and an average profit of just over $30 per successful transaction, I am still able to achieve overall profitability. I believe the most important reason is that my average loss per transaction is very low, less than $8.
Do you understand what I mean? My trading success rate is very low, so low that even I feel embarrassed. The average profit per successful transaction is not high (at most $127 per transaction, at least $26 per transaction, with an average of only $35), but for every $500 in principal, I earned a profit of $1460 in the first seven months of this year. Although not worth mentioning in the eyes of experts, I am quite satisfied. The average profit per transaction is $4.79, which is getting closer and closer to the results obtained through testing historical data before I started using this method of trading. This has strengthened my confidence in using probability theory to guide operations.
Once the confidence issue is resolved, you will be able to enter and exit the market more freely, which I believe is crucial. Always hesitating and worrying about this and that, what’s the use of analyzing it well? If you don’t solve the confidence problem, you will always wait for the so-called best entry opportunity. You should know that the best entry time is not determined by analysis or waiting, but by constantly trying and experimenting. If you have a clear idea in mind, you dare to try. There are countless things in your heart, even if I hold a knife to your neck, you will still shrink back. If you often say this to yourself, it means that your psychological barrier has not been resolved.
Next, I am going to discuss my views on the specific application of stop loss techniques.
Once again, let me talk about the most important aspect of stop loss application in my mind: don’t passively wait for the stop loss to be triggered, be proactive in stopping losses. The stop loss level set when placing an order is the maximum loss you can accept, so try to take action before it triggers.
Taking myself as an example, the maximum loss I can accept is 20 points (including spreads), but I rarely let it trigger unless the trend is unfavorable right after entering the market and my stop loss level is broken before I react (this happens many times, which once again shows how poor my technical analysis skills are). Every time I fail to establish a position, as long as I can withdraw before the preset stop loss level is triggered, I am very happy.
The person who benefits the most from organizing their own operational ideas through words is actually themselves. I will persevere.
I can finally accept the stop loss, thinking that the problem has been solved, but I didn’t expect to encounter even bigger problems. Almost every trader who goes from refusing stop loss to accepting stop loss will encounter this problem. Many people have even given up stop loss and returned to the old path of not stopping loss as a result. Refusing stop loss seems to be very effective in volatile markets. No matter what price I enter, whether I buy or sell, as long as I can persist (the position is not too heavy), I can always make a profit. And almost 80% of the time, the market’s trend belongs to a fluctuating market, big or small. A trader who is accustomed to profiting in volatile markets has enough reason to mock stop loss.
But the problem is that the trend market will come sooner or later, maybe a month later, maybe six months later, or maybe a year later. Generally speaking, the longer the oscillation lasts, the stronger the trend will appear afterwards, to the point where it can absolutely take away all the profits that traders who refuse to stop losses have gained in the previous oscillation market, plus interest.
When I first chose the stop loss level, my first consideration was how to give the market enough activity space to ensure that the stop loss was not touched. To achieve this goal, the range of stop loss can become larger and even reach the point of losing rationality. I used to use hourly charts as the basis for entering and exiting the market, and for safety reasons, set stop losses based on the support and pressure on the weekly chart. By doing so, the probability of my stop loss being touched is indeed much smaller, but in reality, this is just a disguised refusal to stop loss.
It is often seen that some forex traders who enter and exit based on hourly charts often set stop loss levels of 50 points or even over 100 points. On the hourly chart, this can be considered a strong trend. As for operating based on daily or even weekly charts, I don’t think it makes much sense for people without large funds. Ordinary investors with only a few thousand or tens of thousands of funds, operating based on daily or weekly charts, have low capital utilization and relatively high risk. Of course, this is just my understanding, the probability of being incorrect is higher.
Traders who set wide range stop losses have one reason, which is that they are prepared to engage in long-term trading. As the ghost of the exchange said, there is no distinction between long-term and short-term trading itself, only the length of holding time. Holding a good position for 100 years is not too long, and holding a bad trade for 1 minute is not too short. I think it is not very objective to set a holding time and profit target before any transaction. With a preset, I hope the market will follow my expectations and have hope for the market trend, but you will inevitably not objectively view the market. It’s not me who decides the holding time and profit target, but the market. Before trading, all I can preset is how much I can lose.
In my experience (I trade based on hourly charts), after entering the trading process, it usually takes about an hour to basically judge the quality of the position. At times of rise or fall, there will be some actions taken. Otherwise, the trend is likely to move towards the opposite of the position you have built, at least the trend will come to a halt. At this point, if the trend does not prove the reason for your position, you should choose to exit, regardless of whether it is a win or a loss on paper. I learned this from ghosts, and I think it’s quite useful, helping me significantly reduce the losses caused by making mistakes.
I have two main criteria for setting the stop loss position:
Firstly, it must not exceed the maximum loss amount I have set, which is 20 points;
Secondly, it conforms to the characteristics that I have obtained from the statistical analysis of historical data on the trend I am pursuing. This sentence is a bit awkward.
Simply put, the basis of a trading system is a profit model. The choice of this profit model varies from person to person. The profit model I have chosen has a low success rate, but once successful, it may bring significant returns in a short period of time (with a trend of over 100 points). After determining the profit model, go to the historical data to find all the eligible ones, and then count their common characteristics (only focusing on commonalities, not differences).
For example, in my profit model, all eligible trends have a commonality: the candlestick that breaks through (closing price higher than the highest price of the previous candlesticks) is almost 100% unlikely to be completely swallowed up by subsequent retracements. In other words, how do I determine the stop loss position? Obviously, it has broken through a price point below the K-line. That’s how I set the default stop loss level for every trade. Firstly, look at the price below the lowest point of the K-line breakthrough. If it is less than 20 points, use it. If it is greater than 20 points, still use 20 points as the standard.
As I mentioned earlier, I usually do not allow my preset stop loss level to be touched. In my profit model, there is another commonality among eligible trends:
The sustained trend towards breakthrough also occurs almost 100% within one hour after the breakthrough. So I use the one hour standard to judge the quality of the position. If there is no sustained movement after an hour, regardless of its profit or loss, exit first. It’s quite simple, isn’t it. My trading system only sends in and out signals based on the combination of two adjacent candlesticks, two moving averages, and two averages that determine the highest and lowest prices within a certain range. That’s all, there are no other technical indicators. The cycles of the two moving averages are 5 and 18, and there is no other reason to choose them, just to make a good start.
Simply put, I built my own trading system like this:
- Choose a profit model that you like (just one, too many are troublesome);
- Search for all eligible trends in historical data and analyze their commonalities. The more distinct the characteristics, the better;
- Determine how to trigger entry and exit signals based on the commonalities identified through statistics, such as when to open a position, when to exit an unsuccessful position, when to exit a successful position, and so on;
- Try to keep the trading system as simple as possible. It’s so simple that even a layman can follow it to operate, and it won’t be too distorted.
The trading system should make corresponding adjustments as the market changes. The market is composed of people, and market participants are constantly changing, which determines that the market will also change accordingly. So, there is no fixed method, nor is there a fixed trading system. However, excessive optimization seems to have little significance. Too many restrictive conditions will leave the operator at a loss.
Additionally, I would like to disclose some data on my stop loss statistics, but I am unsure if they have any commonalities. I limit the maximum loss per transaction to 20 points, but in fact, on average, my actual loss per transaction does not exceed 10 points. The first seven months of this year have remained stable at around 8 o’clock. The author of Trade Your Way to Financial Freedom also mentioned this finding in the book, which is that actual losses are approximately half of your expected maximum losses. So if I limit the maximum loss to 10 points, can the actual loss be reduced to around 5 points?
I feel that the author of Trade Your Way to Financial Freedom has a strong academic atmosphere. Since he mentioned in the book that actual losses are about half of the pre-set maximum losses, there must be a lot of statistical data as a basis. And my own practical operation results have basically verified this. I don’t think it’s a coincidence. Therefore, I want to see if the operation results of other traders also show this pattern. If so, do I need to start by reducing the preset maximum loss in order to further reduce the losses from each failed transaction?
My idea is that instead of communicating on specific operational methods, it is better to communicate on statistical data of transaction results. By analyzing statistical data from practice, it may be possible to discover some common characteristics. I think the biggest disadvantage of ordinary traders compared to institutional traders is not the small amount of funds, limited sources of information, slow speed of obtaining information, or poor trading flow, high transaction fees, but the lack of valuable data from actual trading. Statistically analyzing the results of a thousand transactions may not reveal much, but analyzing the results of over ten thousand transactions should reveal something with a certain degree of regularity.
That’s all we have to say about stop loss. With the accumulation of experience, the specific application of stop loss in the future will definitely be different from now, but one thing I am certain of is that I will always choose the stop loss method with smaller losses after making mistakes, rather than the opposite. Stop loss can only help me survive in the market for a longer period of time. To achieve my original intention of entering the market for speculation, I must achieve profitability.
A complete system should certainly include how to exit profitable positions. There are not many prerequisites for me to exit the profitable position, and I don’t want to talk about them in detail. Moreover, they are constantly being adjusted. However, one thing is very clear: if you are going long, before the short-term head formation, you will definitely not exit profitable positions and engage in subjective profit taking, which I consider boring. I basically don’t have a pre-set specific number for my profit target. Of course, after reaching a certain number, I will be more vigilant because in this situation, the probability of my trading system issuing an exit signal will increase.
Every trader has their own criteria for determining the short-term top, there is no need to force consistency. However, these standards should not be subjectively imagined, but also need to be tested through historical data and adjusted in trading practice. My own criteria for judgment are very simple, and the most important one is to break through the previous high point in the opposite direction. The previous high point here appeared within a certain range recently, and it must be clearly distinguished from the final high point, that is to say, it should have been set a period of time ago, the new high of that time period. Continuously setting new highs with several candlesticks is not counted.
Please refer to the book ‘Street Smarts High Probability Short Term Trading Strategies’ for specific details. I am not interested in the short-term trading methods introduced in this book because they do not align with my trading philosophy, but I believe that some of the quantitative analyses presented in the book have great reference value. Taking an upward trend as an example, if a new high is reached and then falls below the previous high, the probability of a failed breakthrough in this round of upward momentum will be quite high, large enough to make me believe that this situation is worth including in my trading system. Usually, I only use other criteria to determine whether to exit profitable transactions after meeting this requirement.
In summary, I always wait until the clear high point on the hourly chart is formed before considering exiting.
I think that always exiting profitable positions too early is not a technical issue, but still largely a psychological problem. Many traders are aware of this, but they are always unable to overcome it. Let me talk about how I overcame this psychological barrier. It may be funny to say it, but it did help me basically solve the psychological barrier of always being unable to “make profits run”. The specific amount of profit to be made to run is not the key. As long as the psychological problem is solved, I can use hourly chart trading to make profits run more than 100 points on the hourly chart. If I have a certain amount of funds at my disposal in the future, I can also make profits run over a thousand points on the daily chart and over ten thousand points on the weekly chart. The specific operating techniques can vary greatly, but there will not be any substantial difference in the psychological requirements for the operator.
In my opinion, greed is not the main reason why I used to exit profitable positions too early. The main reason why I don’t have the psychological quality to make profits run is that I always keep myself in the position of a bystander in the market, rather than truly breathing and sharing the same fate with the market in practical operations.
Next, let’s continue to talk about how I solved the psychological barriers that prevent ‘letting profits run’. If I accept the stop loss, in order to ultimately achieve profitability, I must also make profits run, otherwise, at most, I can only achieve breakeven. Actually, everyone knows this, but it’s always impossible to achieve it. I used to be like this, every time there was a floating profit on my books, I always had a desire to cash it out as soon as possible, afraid that these profits would fly away. Why is this happening? I later discovered that the main reason was that there was a significant issue with my attitude towards these profits.
The market is composed of people involved. No one likes stagnant trends, which also means that the market does not like stagnant trends. The market is always looking for breakthroughs, which is determined by the psychological state of participants. In my opinion, every attempt to break through the market is real, just with different effects.
Therefore, in my eyes, there are only successful or failed breakthroughs, and there is no such thing as true or false breakthroughs. Therefore, to truly breathe with the market and share the same destiny, I must participate in every attempt to break through, whether it is upward or downward. Constantly trying, there will always be a clear result, and at this point, you will think to yourself: My attempt was successful.
Of course, this is just a psychological suggestion, although it doesn’t have any effect on the breakthrough direction ultimately chosen by the market, you will have a feeling of participation. What is the first thing that comes to people’s minds after striving for success? return! It is enough to make up for the rewards I have put in during my efforts. Why does every successful breakthrough result in a thrilling trend? Isn’t it right for the successful party to demand compensation from the failed party? The determination of market trends is mainly a game between large funds, but no matter how large the funds are, it is still people who operate them, and their psychological activities are not much different from those of ordinary people.
The feeling of participating in it will make you feel confident about gaining profits, because it is what you deserve. Without this process of repeated attempts, I would not have had this psychological state. I entered the market after the breakthrough trend was confirmed, and not only did I lose a profit (often the most substantial), but I also had the idea of finding a bargain. How do bargain hunters treat what they get? Of course, it doesn’t matter how much it is, as long as it makes a profit. The general mentality of people is that they tend to have a more casual attitude towards things that are not earned through their own efforts.
I participate in every attempt to break through the market, and the profits that come with a successful breakthrough are seen by me as the reward for the success of the attempt. This reward is given to me by the market, because I helped the market determine the direction of breakthrough (of course, it is definitely self deception). Therefore, my attitude towards this kind of compensation is justified, and the more, the better. I am not a thief, I am not stealing profits from the market. I am not a bystander who enjoys the benefits, and a little profit cannot satisfy my appetite. Before every successful breakthrough, I have experienced numerous failures, and once I succeed, I feel a sense of pride. At this moment, how can I easily leave the trend that I have finally helped establish and is beneficial to me?
This is also an advantage held by small capital ordinary investors. I can switch between long and short positions at any time, while large funds can only identify one direction. Sometimes, I feel like a extras in a war movie. Multiple attacks, I follow the flags and cheers of multiple sides. Once the multiple attacks come to a halt and the air side launches a counterattack, I immediately join the air side camp and cheer for them. No matter who the ultimate winner of a battle is, I am a participant. And the psychological state of a participant will be completely different from that of an observer. The losses caused by stop loss in my constant attempts are just my ticket to either side. Of course, in the process of constantly changing long and short positions, I will not wholeheartedly join either side.
How to join breakthrough attempts, how to quickly exit unsuccessful breakthrough attempts (not successful does not mean failure), and how to minimize the losses caused by unsuccessful breakthroughs are all details that need to be determined by each person based on their actual situation. I won’t talk much here. Where do traders need to invest a lot of time and energy? I think it should be used to solve the above-mentioned details.
Running profits is like a drug to me, every success brings me joy. If you don’t believe it, try it yourself. Now, making profits run is not only the guarantee for me to achieve ultimate profitability, but has also become a spiritual need for me.
Don’t be afraid of making mistakes. Errors in trading are not only impossible to avoid, but they will definitely exceed the correct number of times. When choosing a breakthrough direction in the market, one should try more. The correct transaction is not something that can be predicted by waiting or relying on any secret code, but rather something that is constantly tested. (Rule trading, every order must follow) The market itself is constantly trying, and I myself am constantly trying. Can this be considered breathing the same breath and sharing the same fate as the market? I think it should be counted.