Over the weekend, with the monthly closing, the advice I gave these days is actually very simple. Aggressive traders can operate, but make sure to set a stop loss to ensure the safety of the principal. Remember, the fundamental of trading is survival. As the market has not shown significant movements in the past few days, today I, the AICoin expert, will not provide market analysis or advice on Bitcoin and Ethereum. I have already discussed the market trends with everyone privately. Now, what we need to do is wait. Since I won't be providing analysis, let's talk about something else, which is the issue of stop loss. Why is it necessary to strictly set a stop loss for every trade, and how to deal with frequent stop loss after setting it?
Frequent stop loss can generally be divided into three situations:
- Market does not cooperate,
- Incorrect entry points,
- Issues with stop loss setting.
Let's analyze and solve each of these situations one by one. First is the market not cooperating. There is a saying that "even a pig can fly when it stands at the wind's edge." Similarly, when the market fits our trading habits or trading system, we just need to strictly execute according to the trading system, and profits will naturally come. This is why you come to me. I am not teaching you how to make money, but rather how to survive in this circle. Be patient and restrain yourself.
Let me give you a simple example. When we use a dual moving average system for trading, in a one-way trend market like the one below, as long as we strictly follow the rule of not leaving when the price does not break the moving average, no one can stop us from making money. This is a case of market cooperation. Obviously, in this situation, if you set a stop loss based on the moving average, frequent stop loss is impossible. In a downtrend, sideways trend, or uptrend, if you are operating within the range between the downtrend and uptrend, you can see that the price is fluctuating around the moving average. If you still set a stop loss based on the moving average in this market, frequent stop loss will definitely occur.
Some of you may find the above explanation a bit complicated, so let me put it more simply. You can win a horse race, but you cannot win every horse race.
So, some students ask how to deal with this situation. This is a very good question, and the solution to this situation is also very simple:
- Reduce the frequency of trading,
- Tough it out during the sideways market.
My advice is to reduce the frequency of trading. It's better to miss than to make mistakes. Missing out only means earning less, but making mistakes could lead to being liquidated. For us traders, the ones who can afford to lose are the long-term winners.
Next, incorrect entry points. For most people, identifying the direction is not a problem. The problem is that identifying the direction does not necessarily mean making money. On the contrary, it is often the case that even when the direction is correct, money is still lost. This is similar to the importance of timing in warfare. It requires the right timing, location, and people. Is it correct to open a long position at the points indicated by the arrows?
The direction is obviously correct, but the timing is not. Especially for us who trade contracts in the cryptocurrency market with high leverage, if your position is heavy at these two points, if you set a stop loss based on the moving average, you have probably already been liquidated. If you use a small stop loss to chase the rise, it is clear that you will have a hard time avoiding the outcome of frequent stop loss, even if your direction is correct. Many times, it's not just a psychological issue, but also a practical issue.
Similarly, if you open a short position at these two points, even in such a strong one-way market, you still have a very good profit potential. This is timing trading, which is more about seizing the right timing. Of course, I do not recommend going against the trend.
Obviously, during this period of time in Bitcoin and Ethereum, the trend has been bearish. Except for a few small retracements breaking the upper resistance level, opening short positions has been correct most of the time and has not been easily stopped out.
From a probability perspective, there is a much greater chance of making money by opening short positions than by opening long positions. This is why it is said that trend is king. As for issues with stop loss setting, there is not much to say, because stop loss is not only an objective issue, but also a very subjective one.
Objectively speaking, for trend traders, they should not leave as long as the trend is intact. But subjectively, whether it's the retracement of profits or the ability to withstand losses, everyone's psychological and actual ability to withstand losses is different.
Here are some personal opinions from the AICoin expert, which I hope will be useful to everyone:
Stop loss is necessary, and frequent stop loss is better than no stop loss. Even if there are consecutive stop losses, so what? At least we are still here, not yet liquidated. The fundamental of trading is survival.
Do not set the stop loss at an obvious level, especially avoid setting it at resistance and support levels, otherwise you may easily be liquidated.
Stop loss is not only for risk control, but more for increasing capital utilization and giving yourself a chance to re-enter the market when there is a one-way trend.
Do not lower the stop loss line in long positions or raise it in short positions. If it's time to stop loss, stop loss. If it's time to take profit, take profit. Don't be unwilling, and give yourself a chance to be wrong.
The triggering of stop loss does not mean the trade is wrong. Stop loss does not equal loss. This is just the normal wear and tear in our trading, it's normal.
Those who do not stop loss will eventually be liquidated, so be strict with stop loss and dare to stop loss. Be a mature trader. No one has ever lost everything just because of stop loss.
Do not trade frequently.
I am the AICoin expert, a warrior who has always been protecting the "leeks" (retail investors). I wish my fans to achieve financial freedom in 2024. Let's go together!
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