The strongest trading logic: Trading is a game of stop-loss, and taking profit and stop-loss are just the results.

First of all, 99% of retail investors make the same mistake: they can't hold on to the trend and stubbornly hold on to the counter-trend.

Let's talk about not being able to hold on to the trend first. Many people hold a mentality of "take profit when it's good, secure the gains."

I have seen many newcomers in futures trading who always want to do day trading, thinking that day trading is the highest realm. The scenario they fantasize about getting rich through futures trading is like this: when they want to make money, they go to the futures market to trade for a day, make a profit, and live a comfortable life. Whenever they need money, they go back to the futures market to make some more. However, ideals are abundant, reality is stark. They often miss out on many big trends that could have made them financially free in one go.

Incorrect profit-taking causes them to miss out on big trends, and at the same time, they often fail to cut losses when they are wrong, stubbornly holding on to counter-trend positions and even adding to losing positions. It's like making only a small profit when doing things right, but incurring bottomless losses when doing things wrong. Who doesn't lose money in this way?

The theory of gamblers going broke states that the amount lost in each failure is the same as the amount won in each success. But you, on the other hand, have bottomless losses and only small profits when you win. It's strange if you don't go broke in the long run.

So what is the correct approach?

Waiting for stop-loss

Every trader is very familiar with stop-loss, whether it's in the stock market or the futures market. A loss of tens of thousands of dollars is always accompanied by countless stop-loss actions. Traders follow stop-loss orders obediently and panic, and from my observation, 60% of trends would be like a winding road with no end in sight if stop-loss is not applied. It's not a case of "where does spring return, lonely with no path."

Traders have experienced this: making money in a simulated account is easier than actual trading. Why? Because everyone's tolerance for losses has increased, or it can be understood as no longer being terrified or fearful of losses. In a real trading scenario, where stop-loss should have been applied early, a slight adjustment in a simulated account can turn losses into gains, even making big profits. The reason for this can be summarized as setting wider stop-loss orders.

Many traders have told me, "You always talk about being cautious with positions, but I am a very cautious person, yet I still lose money, and the more cautious I am, the faster I lose. I asked him to show me his trading records, and after seeing them, I was speechless. His stop-loss orders were set too small, and as soon as there was a slight loss in the market, he closed the position. On the other hand, even when he made a small profit, or even a substantial one, he did not take profit, and only regretfully closed the position when the profit turned into a loss. I call this cautious trading approach "waiting for stop-loss." It seems like his purpose in trading is to incur losses, or at least to wait for stop-loss. He rarely takes profit proactively, and always swiftly closes positions in small losses that can be tolerated, endured, and may lead to a reversal, turning floating losses into realized losses.

We should know and understand in life, in dealing with people and things, it's not always smooth sailing, and there are often unexpected setbacks. But we don't give up hastily because we believe that as long as we strive for it, relationships will harmonize, and things will progress in a favorable direction. How did we become so negative when we entered the trading market, becoming "expectant and longing for stop-loss," unwilling to endure a little floating loss? Life has its ups and downs, and so does trading. It's not always win-win-lose-lose, but rather win-lose-win-lose. Trading is made up of gains and losses. To be successful, traders must first understand stop-loss and learn to lose rationally, rather than continuously stop-loss due to emotional impulses and fear.

Every time we place an order, we have made a judgment on the market. Many traders' positions are in line with the winning direction, and their capital is generally well controlled. However, they fail to view the market from a trend perspective and tend to close positions when there is a slight loss, while winners who hold on to the same positions make substantial profits. They even self-deprecatingly say, "Maybe holding on to the position won't lead to deeper losses." This kind of thinking in trading eliminates the possibility of making a profit.

Why is it easy to take profit but difficult to cut losses?

In the trading world, it is easy for ordinary traders to cut losses, but it is difficult for winners to take profit. Some winners have told me that the most difficult thing in trading is taking profit, and they often see winners misjudging the market, leading to profit erosion when there is a reversal. Why does this happen?

Most traders in trading are young people. Everyone knows that young people find breaking up very painful. Why is that? Because they believe that continuing the relationship will lead to a happy and fulfilling future, and they make every effort to envision and long for what they believe to be beautiful. Even though all of this may be their imagination or self-deception, the pain of breaking up is real. Love is like trading for profit, and breaking up is like taking profit. Love only has the potential to lead to happiness. There are only two or three months of smooth upward trends each year, and most of the time, the market is full of twists and turns. If you take profit, you may miss the opportunity for the entire year, or even several years, or even once-in-a-decade big trends. Breaking up is just saying goodbye to the "possibility of happiness," while taking profit is breaking up with solid profits. It's obvious which one is more painful.

Incorrect profit-taking and not taking profit are equally distressing.

After a smooth uptrend in March this year, in mid-April, I told a trader that the market was reversing and we should go short. He believed that the uptrend would continue and persisted in a bullish mindset, leading to profit erosion and eventually losses. In early May, he had no choice but to go short, and in late May, when he went long, he coincidentally caught the market adjustment, which was like being kicked out by a lover, hiding in a corner to heal, and then re-entering the emotional arena, only to be kicked in the mouth again.

Opening signals are simple, just look at the basic patterns.

The difficulty lies in getting caught in the volatility and setting profit-taking and stop-loss orders according to the trend. Profit-taking often cannot be achieved, while stop-loss orders are often triggered repeatedly. After several stop-losses, even if you catch a big trend, it cannot make up for the losses. Volatility has a relatively stable range. If you get caught in the volatility range with a trend trading mindset, opening positions and setting stop-loss orders will tend to involve chasing highs and killing lows, leading to opening positions and stop-loss orders being placed at the most unfavorable positions. As for taking profit, either it is set outside the volatility range and cannot be achieved, or there is little profit left after a retracement.

Solution: View volatility as a range. Once you realize that you are caught in volatility, step out and watch quietly. Trends have relatively stable directions, and volatility has relatively stable room for maneuver. Traders must learn to understand these two relatively stable elements. The techniques used are nothing more than avoiding volatility by looking at patterns and support and resistance, grasping the trend, and using support and resistance to set profit-taking and stop-loss orders. Instead of participating in volatility, use the relative stability of the volatility range, set stop-loss orders outside the volatility range, leave appropriate room for maneuvering through stop-loss orders, and filter out volatility.

Key points for opening positions: Don't rush to open positions. Calmly capture the pattern signals formed by the trend and pay attention to whether the market is caught in volatility. If it's a trending market, if you're right, your stop-loss won't be triggered. If it's a volatile market, setting stop-loss orders improperly can easily lead to consecutive stop-losses, resulting in heavy losses. Even catching a big trend cannot make up for it.

Key points for stop-loss: Stop-loss orders should be set outside the volatility range to avoid being easily triggered. This not only controls risk but also leaves room for maneuvering through volatility, thereby filtering out volatility and verifying the trend.

What's even more maddening is that a stop-loss order is quickly triggered, while a profit-taking order often cannot be executed. People who have been trading futures for a long time must have experienced this. It seems like the market is always against you. The answer to this problem is that the volatility range has a certain stability. The amplitude of the volatility range is limited, making it easier to catch the highs and lows.

Since prices repeatedly move back and forth within the volatility range, stop-loss orders set within the range will naturally be easily triggered. Such stop-loss orders only bring about losses, cannot control risk, cannot filter out volatility, and cannot verify the trend.

The reason why profit-taking orders are often not executed is simple. Using a trend trading mindset in the midst of volatility, profit-taking orders are set outside the range, making it less likely to be executed. Even if they are executed, they often continue to move forward.

Many investors are generally puzzled by the idea that "taking profit is always simple, while cutting losses is always difficult." In fact, this is a weakness in our human nature. To overcome the market, you must first overcome yourself. Gains and losses are common in investments. To achieve long-term profitability in the futures market, you must correctly view the gains and losses in investments. This is a prerequisite for establishing a scientific capital management strategy. Before trading, develop a detailed trading plan and strictly adhere to it. Don't take profit when you shouldn't, and don't have a "soft mindset" when you should cut losses.

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