1. Controlling Drawdowns
1) Trend Trading
Market movements are inherently chaotic, but after each period of chaos, a direction is inevitably chosen. Investors recognize the supremacy of trends, yet many attempt to predict trends in advance. In reality, the market itself doesn't know the trend until a critical point is reached. Therefore, we shouldn't presume to know beforehand; rather, we should not hesitate to jump on board when the trend becomes apparent.
2) Light Positioning
The practice of light positioning and the leverage effect often appear contradictory. Trading without heavy positions seems to contradict the game's essence. Many retail investors have achieved rapid wealth expansion through full positions, making such myths highly appealing while ignoring the perilous risks behind sudden riches. Light positioning equates to slow, small, and steady gains. How many can endure these attributes in this market? Moreover, such operations might not yield favorable results in the short term. One might hear a voice saying, "Your approach is correct, but you'll need to persist for at least five years." Would you be willing? Half are unwilling, and many of those who are, often quit midway.
3) Stop Loss
(1) "Wait a bit longer" – wishful thinking
(2) "It will rebound after a loss" – past experiences representing future possibilities
(3) "If I don't stop out, I won't realize an actual loss" – wanting to win but fearing to lose
Misconceptions about the Stop Loss strategy include:
(1) "My stop loss settings are poor and easily triggered; I must find better methods."
(2) "It's a pity to stop out. Lock in the loss and recover it through subsequent operations."
(3) "Does continuous small stop losses indicate a problem with my trading system?" There is no standard answer for stop loss; only your own standard matters.
4) Independent Thinking Ability
In the past, the trading market suffered from a lack of information, and asymmetrical information could secure profits. Nowadays, information overload requires efficient filtering, which is a critical trading skill. Have you ever closed a profitable position because it contradicted a market expert's advice in your social circle? Have you ignored a triggered stop loss due to so-called beneficial news? Have you held onto a position expecting correlations with external market movements? Such scenarios make it hard to maintain an objective view of your positions. Cultivating independent thinking is essential, though it's not quick to develop; awareness is the first step.
5) Always Maintain Positive Energy
Trading is a highly frustrating endeavor. We often curse during losses, and our emotions easily fall into negativity. In the face of the market, we feel fragile, helpless, and insignificant. But remember, you represent other retail investors; all market participants share the same sentiments. Maintaining a positive attitude is vital. Avoid short-term outcome biases and focus on the long-term perspective. Reflect on the current difficulties with the mindset you'll have ten years from now.
Strategy 4: The high-risk, high-reward oscillation strategy
Strategy 1: Treat all fluctuations as reversals.
If the market continues to rise, add to your position; if it continues to fall, close the position. Compared to Strategy 1, this approach yields smaller drawdowns and retains more profit. Compared to Strategy 2, it preserves more floating profits in case of trend reversals, resulting in smaller drawdowns.
Strategy 2: Treat all fluctuations as adjustments unless finally confirmed as reversals.
Strategy 3: Reduce positions during consolidation, whether it’s merely an adjustment or a transition to a reversal.
Believe in the potential of large trends. Add to your position at every opportunity, relentlessly! Hold on! The best strategy for you depends on your comfort level with potential losses. Don’t worry about profits – they're beyond your control.
For more related trading articles, please contact CWG account manager Ahai:
