In fact, I don’t want to write this article. Before writing, let me tell you some cruel facts. Whether it’s true or not, if you’re still losing money, you really need to take a good look.
We all know that there are very few people who make money in the trading market, so how small is it? It’s less than one in a thousand, don’t be surprised, this is considered conservative, and people who get rich by trading are basically masters who are one in a million, and they are gamblers with luck, talent, and strength. Don’t be envious. Usually these one-in-a-million masters basically have no good end (digression).
There is another fact that has to be said, that is, most of the outstanding traders in the trading market are born, and it is not too much to describe them as extraordinary talents and skeletal surprises. It is basically difficult to rely on acquired training to become excellent. , not no, it is... "less".
We usually read a lot of articles about technology and articles about chicken soup. In fact, many of the "hey hey" are misleading, let alone how many people he misled, for some novice investors who have just entered the trading market , It really had a counterproductive effect. Having said that, without the unremitting losses of Xiaobai, who would we make money from?
Let's talk about the importance, what is the most important in the trading market? "Mentality" Yes! It's just these two words that kill a person and don't pay for his life. What is a mentality, and how can one have a good mentality?
My understanding is:
Mentality = excellent fund management + winning rate > 30% trading system.
Before you have a trading system with a high winning rate and perfect fund management, it is difficult for you to have a good attitude. Don't tell me that you are in a good state of mind with a loss sheet now, I can only say that you have reached the highest state of loss, and you can deceive yourself!
Many people have studied the technology for a lifetime and still lose money in the end. Why?
Because the so-called technical masters are concentrated in 99.8% of the losers!
Among the winners in the market, technology takes a back seat, and the core of their domination transactions is fund management, risk control and trading strategies. The reason why they can make money is that 99.8% of losers do not implement, or do not strictly implement, or do not fully implement fund management, risk control, and trading strategies. If technical analysis is a weapon in the confrontation between the two armies, the two sides must be evenly matched; but if one side thinks that the brave will win when the two powers meet, they will be defeated regardless of everything, braving the hail of bullets and going into battle shirtless. They did not lose in weapons and equipment, but in their lack of understanding of defense and protection, combat strategies, and the use of troops. In our transactions, they are risk control, trading strategies, and fund management.
If everyone strictly, scientifically, reasonably, and fully implements and abides by fund management, risk control, and trading strategies, technical analysis can play a role in determining the winning or losing pattern.
That is to say, seeing this, 0.2% of the winners only work hard on fund management, risk control, and trading strategies, and never care about technical analysis. , continue to be winners. Because of their broad vision and profound artistic conception, traders who only focus on technical analysis cannot match and compete. And failed traders will not understand what forces are controlling the transaction, and they will plunge into the pile of technical analysis books and cannot extricate themselves.
The reason why losers and winners are equal in technical analysis is that technical analysis itself decides, which belongs to the inherent shortcomings of technical analysis. For example, the Dow Theory judges the trend. Only when the market goes out of 30% can the trend be confirmed. But it will miss the opportunity to buy the bottom and escape the top. In the final analysis, technical analysis is a matter of probability, that is, no matter how good your skills are, it’s just that the odds of winning in research and judgment are greater, and you will have a 50%-60% certainty; 40%-50%. The difference is almost the same. For example, after a trend reaches its peak, it goes away by about 30%. There should be little disagreement on whether it is the top. Some traders who hold different opinions will say that it is close to the top. From the point of view of the overall trend, the viewpoints are basically the same, and the differences can be ignored, so there will not be a gap between winning and losing. But if you intervene with a full position or a heavy position here, the problem will come. When our traders participate in the trend, they can see the big direction right, that is, when they enter a heavy position and are shaken out by small, small adjustments, they lose money, and they miss the trend after a little trance, which is very regrettable. You don’t have to be afraid of making mistakes when you open a position lightly, because the loss is very small. You just follow the market, and you can’t shake it or run away. A lot of money has been made.
In fact, the gap between the strong and weak technical level is at most 10%. If you rely on your high level, you will enter a heavy position and fail to implement fund management; if your level is inferior, you will feel inferior, try a light position, and your funds will be managed. In the end, you can see that those who have been laundered and lost a lot of money must have a high level and entered heavily; while those with a slightly lower level will always follow the trend, although the profit will not be too much. But he widened the gap with the funds of those with heavy positions. After several reincarnations and one or two years, there is a world of difference between a beggar and a rich man.
Technical analysis of various genres, various theories, and various indicators, none of the market predictions is 100% affirmative or negative, at most it is possible, basic, approximate, will be formed, etc., which is an ambiguous 50% probability. They are all talking about what is possible, what is basically formed, how the probability of reversal is too high, and the rising market may continue... If analysts who practice their words talk at both ends, it is the saying that both ends are blocked , he is a fool who can do everything he can, and there is never a time when he is wrong.
The winners in the stock market, bond market, foreign exchange market, and futures market are generally those who buy at the bottom and hold steadily. It is this simplest tactic that the entire technical analysis will bow down to. In the mainland stock market, the winners who earn more than ten times in each major trend are those who buy at the bottom and hold for a long time. There is another direction for futures, buy at the top, grasp the reversal pattern, and hold it for a long time. Only by mastering this trick, you can make a hundred times, hundreds of times, or thousands of times of profits, and you can be invincible, benefit from life, and become a winner in life.
In the speculative market, if you want to select the top ten ultimate killing weapons, I think fund management can be ranked second, and Xiao Li Feidao is still ranked first.
Why does Xiao Li Feidao occupy the first place in the weapon list for a long time? The reason is that in the speculative market, there is no one who dares to catch flying knives randomly. Even if you can escape the first day of junior high school, it is difficult to escape the fifteenth day.
Throwing knife skills are difficult to learn, so let's skip it!
Next, let's continue to dig deep into the so-called fund management, just like peeling off the last layer of mysterious veil on a beautiful woman to see how graceful the fund management body is.
A trading system is a prerequisite for money management
To understand what money management is, there is a point that must be emphasized first: the rise and fall of the market is unpredictable.
Seeing this, someone is probably going to jump up and challenge me: I don’t predict the rise and fall, how to buy and sell, if it is not because I am optimistic that a stock will rise, why should I buy it?
In this regard, I reserve my opinion and do not explain it. It is a hurdle to go from predicting to not predicting. It requires a little stock trading wisdom to realize it. When you realize it, you will naturally understand it. Before you understand it, explaining it face to face for ten and a half months will not produce results.
If you can’t understand the idea that the market’s ups and downs are unpredictable, but you are willing to accept the unpredictability in your heart, then what you need is to give yourself some time to think, and one day you will understand.
If you object to the idea that the market is unpredictable, I don't want to deny you, and don't deny me, otherwise there is no need to quarrel or even fight.
You can make money without predicting the market. Take my trading system as an example, it is based on the rules of not predicting, and it has been making profits so far.
So can you make money by predicting the market? able! Certain stock review and stock recommendation big Vs make hundreds of millions of dollars in banknotes every year by predicting and recommending stocks.
Can you make money by forecasting and buying and selling stocks? Don't say that I am ignorant, I have seen occasional sudden profits, but I have never seen long-term stable profits.
Why emphasize not predicting? Because only if you know how not to predict, can you truly understand and comprehend the trading rules, and only if you understand the trading rules, can you effectively build your own trading system.
A mature trading system should include fund management, and fund management should not exist independently of the trading system. Remember that it should not be, not that it cannot be.
I personally think that if you want to accurately understand the concepts of trading rule system and fund management, you must first learn not to predict!
If you still don’t understand and don’t predict, it is possible that what you understand so far is not what I said at all, and you may even misunderstand it. This is one of the reasons why you have not talked about fund management. I am afraid that I will make a mistake and mislead everyone.
Realize fund management from risk control
In order to facilitate everyone's understanding, I still use the moving average trading system to explain, the golden cross opens long, and the dead cross flat long opens short.
Assuming that the accuracy rate of the moving average trading system is 30%, and the average profit-loss ratio is 7:3, then, without considering transaction fees and costs, the entire trading system cannot make money.
How to understand? For example, if you trade 100 orders, 30 orders make money, and 70 orders lose money. The profitable orders earn an average of 70,000 yuan per order, and the average losing order loses 30,000 yuan per order.
In fact, most of the trading rules and trading systems established purely with indicators can only achieve no loss.
Assuming that, through backtesting long-term historical data, the maximum loss of the system reaches 80%. Then, it can be said that this system not only does not make money, but also has a very high risk factor. The maximum retracement of 80% is very scary.
How do you understand it? Suppose you have one million funds, and the biggest loss is only 200,000 funds left. Although the final result is that you can still earn back one million, the risk factor in the process is extremely high, and it can be said that it has been out of control. It's a terrible black swan that may blow up at any time.
For a system that is risky and does not make much money, is it completely unusable?
Answer: Absolutely not.
Let's first look at the risk. The maximum drawdown of the system is 80%, so can this risk be reduced?
Of course, if the position is reduced by half, the overall risk factor will be reduced by half, and the maximum drawdown will become 40%.
Then we reduce the position to 25%? So is the maximum retracement reduced to 20%.
When we write "maximum position control within 25%" into our trading system as a rule, we get a system with low risk and maximum drawdown of 20%, which does not make money.
Note that this "maximum position control within 25%" is a rule in a simple and crude fund management system, which is mainly used for risk control.
The control of trading system risk comes from reasonable fund management.
To digress, everyone knows that you can't operate with a full position, but most people don't know why you can't operate with a full position. The answer is here.
Money management magnifies profits
For us, a low-risk, but not very profitable trading system is actually useless.
Speaking of the key point, how can this system achieve positive returns and make money?
In actual operation, if the rules of opening and closing positions are not changed, the accuracy rate of 30% cannot be changed. We cannot change the profit-loss ratio of 7 to 3. Although we are helpless, it is not impossible. We can change the position. If the average position of profitable orders reaches 25%, and the average position of loss-making orders is controlled at about 10%, then we will not realize profit?
If there are 1 million, the average position of each loss order is 100,000, and the loss is 3,000, then according to the 7:3 profit-loss ratio of the trading system and the 25% position ratio of 250,000, it is equivalent to a profit of 17,500 per profit order.
About 30 orders x 17,500 for every 100 orders - 70 orders x 3,000 = 315,000
Here comes the question, how can we control the overall position of loss orders at 10%, and enlarge the overall position of profitable orders to 25%?
In fact, there are many ways to do it. Among them, the rules for increasing and decreasing positions are easier to understand. Different systems correspond to different rules for increasing and decreasing positions.
As far as a small position control is concerned, it is a big topic for the trading system. I will not discuss it here, and I will discuss it in the follow-up.
By formulating a series of rules and controlling the size of the position to magnify the profit, this process also belongs to the category of fund management.
Money management here almost plays the role of profit maximization.
An excellent fund management can turn a system that does not make money into a system that makes money, and a system that makes small money into a system that makes big money.
Summary at the end of the article
Simple rules for opening and closing positions, coupled with good fund management, can create a profitable and risk-controllable trading system. Good trading systems are a little more complex.
A good trading system consists of trading rules and money management.
Reasonable capital management can effectively control and avoid the risks of the trading system, and at the same time, it can effectively amplify the profitability of the trading system.
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