About Trailing Stop: When you have a profit, immediately move to the break-even point. Of course, stemming from the principle of capital preservation first and profit second, moving the stop-loss to the break-even point after gaining some profit to exit with a worst-case scenario of breaking even is a sound strategy. However, there are some details to be aware of:
First, the initial stop-loss after entering a position is objective, based on technical analysis. However, moving the stop-loss to the break-even point becomes subjective, as it is influenced by psychology rather than technical analysis.
Second, moving to the break-even point quickly does not mean doing so after just a few points of profit, as this often results in being stopped out repeatedly. Move it “appropriately” when the market has run a profitable distance or has retraced again in a small cycle.
Third, although moving the stop-loss to the break-even point is subjective, the initial stop-loss is very objective. However, does the market respect us? In numerous chaotic fluctuations, all patterns are unpredictable. The stop-loss at the break-even point might be hit, and then the market reverses. This is what is known as "chasing the highs". But is this the worst-case scenario? Have you ever experienced being stopped out multiple times in a small cycle (before the concept of moving the stop-loss to the break-even point), wiping out unilateral profits? This common yet unfortunate situation indicates that moving the stop-loss to the break-even point is fine in itself.
Fourth, if you can't move the stop-loss in time, your system needs to withstand the worst-case scenario. Even if you respect the market, it might cause you ten consecutive losses. In a trending market, there are patterns such as Dow waves, but what about when there’s no trend? Does the market still respect you? After a certain amount of floating profit, for example, when you first push for a stop-loss, you should wait until the price has passed the nearest support/resistance before moving it to the break-even point. At the very least, wait until the price has passed the nearest small-scale support/resistance; otherwise, you may easily be stopped out and become an onlooker.
Hence, when dealing with trailing stops, be quick but “appropriate.” The specific method varies from person to person and system to system. You need to be both swift and appropriate, which doesn't happen frequently. So, exercise caution and diligence, putting in a lot more effort to find trading opportunities and compensate for weaknesses. The exact definition of “appropriate” is subjective. Regardless of how convinced you are by someone else’s understanding, remain steadfast in your beliefs. Losing money isn't scary; it's the feelings that continuously challenge our perceived resilience that are.
Regarding the scientific measure of "appropriate," it essentially balances odds and success rates, which are always contradictory. For example, exiting on a daily cycle but entering on a 30-minute K-line ensures a low risk/reward ratio while maintaining a success rate within an acceptable range (about 40%-50%). However, if you exit on the daily cycle but enter on a 5-minute K-line, the higher risk/reward ratio guarantee comes at the expense of a significantly lower success rate, possibly as low as 10% or even lower.
Therefore, mastering the balance of success rates and risk/reward ratios in trading is crucial, and psychological tolerance varies among individuals. Mastering your own trading "degree" is key!
Famous trader Dennis once said: "95% of my profits come from 5% of my trades; the rest are small gains and small losses." This is his sense of “appropriateness.” Even if you move the stop-loss and get stopped out several times, capturing one or two profitable trades can suffice if you catch the trend.
Ultimately, determining your “appropriateness” depends on your individual trading system. Once you have a clear system, good management and psychological control, you basically let the trade run itself. It runs as far as it can without hitting stop-loss (take-profit).
Trading is not complicated. After forming a mature trading system, you still need sufficient experience and self-discipline. Avoid predictions and excessive analysis. Just trade when there's a signal, and wait when there isn't. Over time, you transition from being overly excited by daily profits of a few thousand to feeling indifferent to daily profits of tens of thousands.
Moreover, until you reach a certain level, trading isn't simple. There’s much you don't know. You might see the same things as experienced traders and even reach similar conclusions, but they have taken ten steps where you have taken one. The simplicity you see is superficial, whereas their simplicity is the essence. This notion likely holds true for most industries.
Similar to trailing stops: if a position doesn't gain swiftly after entry, it's likely a wrong trade. A correct position should have both the right direction and the right timing. This concept is subjective, an opportunity cost consideration akin to a minimum tolerance level.
I hope everyone attains financial freedom, preserves their true selves, strengthens their will, knows what they want, and can achieve it through their efforts.
