Today I want to talk to you about the circuit breaker mechanism in transactions. The circuit breaker mechanism is also called the automatic suspension mechanism, which refers to the suspension of trading measures taken by the exchange to control risks when the volatility of the stock index reaches the specified circuit breaker point.
Specifically, it is a mechanism to set a circuit breaker price for a certain contract before reaching the price limit, so that the contract's buying and selling quotation can only be traded within this price range for a period of time.
But the circuit breaker mentioned in this article is not the above transaction price circuit breaker mechanism, but the circuit breaker mechanism of traders' behavior.
1. Reasons for thinking
Last week, a new student sent me a WeChat message, telling me that his gold traded against the trend, and he traded frequently against the trend. He made all the mistakes he could make. In fact, he understands the truth. The original words are that after a period of stability, people will drift away, complacent.
The problems that this student made are actually made by most traders. Maybe you who are reading this article still remember that a certain trader lost his mind and traded frequently, going back and forth for a while, as if he was possessed by the market. After a random operation, it is almost impossible to look directly at the account, and the sharp withdrawal of funds makes you more self-blame for the previous random operation. I can't wait to erase this section of the capital curve.
In some specific environments, the greed and fear of human nature will be magnified. Traders, especially novice traders, can easily lose control of themselves. Complacency leads to random trading losses and then self-harm accounts. Trading is really not easy. The day before, you might have hoped that your funds would double in a short time, but in a blink of an eye, you lost control and were on the verge of liquidation.
2. The nature of the problem
Out-of-control trading behavior often occurs in the novice stage. Many people think that this is a flaw in human nature and cannot be overcome at all. Therefore, after experiencing this kind of out-of-control trading many times, many people completely lose confidence in themselves and turn to automatic trading strategies. Overcome out-of-control trading behavior with automated trading strategies. We will not discuss today whether automatic trading strategies can overcome out-of-control trading behavior and the advantages and disadvantages of automatic trading strategies. The focus returns to our analysis of out-of-control trading behavior. There are two main reasons for the out-of-control trading behavior:
1. It is because traders have too little trading literacy and are prone to impulsiveness, and this impulsive emotion will be magnified under the drive of market fluctuations;
2. The trader system is not perfect, especially the risk control system is not perfect. A trading system not only includes signal instructions for opening positions, holding positions, and closing positions, but also includes a series of standardized requirements such as fund management and risk control.
Therefore, in my opinion, the essence of the out-of-control trading behavior of traders is caused by the imperfect trading system and insufficient trading literacy.
3. Establish a transaction circuit breaker mechanism
To completely eradicate out-of-control trading behavior, I think a trading circuit breaker mechanism must be established. As an important part of risk control, the circuit breaker mechanism of trading behavior has already been used by many mature traders, but I just use the word "circuit breaker" to deepen everyone's understanding and impression.
We often hear some traders say that they close the computer and don’t watch the market when they hit stop loss for several consecutive transactions; or they go out to travel and stay away from the market for a period of time when the transaction is not good for a certain period of time. In fact, these are the performance of the circuit breaker mechanism of trading behavior.
I think that every trader's risk prevention and control system must establish a clear circuit breaker mechanism. Below I will give my suggested transaction behavior circuit breaker mechanism for your reference:
1. A maximum of 3 transactions per day; a maximum withdrawal of 3% of funds; a maximum of 5 transactions per day. No matter which of the above three items is triggered first, the transaction of the day must be stopped.
2. If you lose money for three consecutive trading days, you will not trade on the next trading day; if you lose money for three consecutive weeks, you will not trade in the next week; if you lose money for three consecutive months, you will not trade in the next month.
3. If the circuit breaker mechanism is not strictly implemented, trading will be suspended for one week to one month depending on the situation.
What do you think about the transaction circuit breaker mechanism? Welcome to leave a message.
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