What are the minefields in trading that one absolutely must avoid?
Blindly Holding a Large Position
Trading is a game for the bold and the meticulous, and most traders carry a bit of a gambler in them. The faint-hearted really aren't suited for trading, as their innate timidity, fear of the wolf ahead and the tiger behind, holds them back.
At the heart of entering the market, perhaps most people’s answer would be "to make money", right? It's precisely these two words that drive the majority to favor trading with a large position, hence the unwritten saying, "If you want to be rich, holding a full position overnight is the way to go."
It is advised to have a reasonable capital management system. Manage capital drawdown risk, external risk control, and internal risk control by adjusting entry proportions, thus establishing a standard for maximum drawdown per period.
Averaging Down Against the Trend
After the initial position is established, if the price moves in an unfavorable direction, should one cut losses or continue to average down to lower the cost? If choosing to average down, then it's crucial to have a plan for the quantity and the intervals of further positions.
If positions are added too closely together, causing the holding to expand quickly within a narrow price range, the account's risk capacity will decrease significantly. After repeating this several times, traders become increasingly worried about holding too much, which can lead to hesitation in adding positions when the price moves favorably.
As a result, one often ends up with large positions during losses and small positions during gains. Obviously, this only exacerbates losses and diminishes profits. Even if the profitable ticks outnumber the losing ones, the profit amount can be less than the amount lost due to the quantity of positions.
Refusing to Cut Losses
Holding on despite losses? It's an issue almost every trader has faced at some point. Some are reluctant to correct this because they've previously made money by holding out, often glorified as "holding out successfully".
In fact, when we have a losing position, it's crucial to cut it quickly, to immediately adopt the right attitude towards losses and the pressure of making mistakes.
When we can't face this, it results in not cutting losses in time, leading to wishful thinking that our position will soon move in a favorable direction.
Trading in Markets You Don't Understand
Prefer what the boss says, "Trade in markets that suit you, earn the money you should earn", just like making a trading plan, making sure bets. If you're looking for opportunities to trade during the session and enter markets you don't understand, even if you do go ahead, the certainty at the time of establishing a position won't be there, hence the confidence in holding won’t be strong, leading to the desire to close positions at a slight profit and the tendency to hold on during losses.
Most investors know the methods and rules for successful trading; it's long-term adherence and implementation that leads to success. The dividing line between success and failure is not how much you know, but how much you do.
The essence of trading is patience in waiting for opportunities, patience in waiting for the most favorable risk/reward ratio, patience in seizing opportunities. In a bear market, some institutions, using other people's money, will desperately look for opportunities to struggle out of difficulties, even if there's only a sliver of hope.
We're dealing with our own money and should therefore be extra careful. Do not blindly attempt to forecast the bottom, and certainly don't blindly speculate on it. Remember, the bottom and top are the areas most likely to incur heavy losses. When confused, do not make any trading decisions.
There's no need to force trades if the right market conditions are absent. Without high-probability opportunities, do not forcibly enter. The market is like a battlefield, and capital is your soldier. Only with correct broader strategies can you confidently engage in battle. Aim to secure victory before seeking battle, not the other way around.
