Li Hui has always emphasized not to go short in an uptrend, but to wait for a pullback to the support level to go long. Never go long in a downtrend, but wait for a rebound to the resistance level to go short!
So what criteria should we use to judge trends? How should we find support and resistance levels? Without further ado, let's get straight to the point. First, how to define a trend doesn't require complicated indicators; just look at price structure. If the price keeps making higher highs and higher lows, this is an uptrend; as long as the structure holds, we only go long when it pulls back to support. If it is in a narrow range, we should wait and see, and then go short after breaking out of the upward fluctuation or go long after breaking down from the fluctuation!
If the price continuously creates higher highs and lower lows, this is a downtrend. As long as the structure holds, we only go short when it rebounds to resistance. Because the market has inertia, once a trend is formed, it won't easily change. This is also what Li Hui repeatedly emphasizes in practical trading: the trend is the sky, and the key levels are signal levels. Since the direction of the trend is clear, the next core task is to find key positions with high win rates.
In actual trading, there are three criteria for measuring key levels. First, the number of tests – the more times it is touched, the better. More times indicate stronger market consensus among funds. Second, support-resistance interchange, where a level has served as both support and resistance; this is crucial, and we should focus on positions where this interchange has occurred. Third, visual prominence – only look for levels that can be easily identified at a glance. Key levels that are immediately obvious are the ones that all market participants can recognize.
After finding key positions that meet the above conditions, in order to seize more potential trading opportunities, we should switch from lines to ranges; this is the golden position you need to wait for. So if it is an uptrend, wait for the price to pull back to the key position, and then continue to wait for a bullish signal to go long. If it is a downtrend, wait for the price to rebound to the resistance position, and then continue to wait for a bearish signal to go short. Of course, if you are still unclear about identifying the key levels;
some may ask, everyone understands the reasoning, but wouldn’t it be more profitable to bottom fish, guess the peak, and bet on a reversal? Firstly, trading with the trend is to align with the market's inertia; once a trend forms, it is like a train traveling at high speed, possessing strong inertia. In an uptrend, the power of shorts is extremely weak. Every attempt you make to find resistance and guess the top to short in an uptrend is akin to standing on the tracks trying to stop the train with your hands. The probability of being crushed by a high-speed train is extremely high. However, waiting for it to pull back to the support level to go long is like giving a push in the direction of the train; at that moment, you are utilizing the market's inertial energy, thus your win rate will naturally be higher, aiming for a more reasonable risk-reward ratio.
Many traders incur losses not necessarily because they often make wrong predictions, but because they lose too much on a mistake while earning too little on a win. If you enter long near a key support level, your stop-loss point is very clear and has little space, usually only needing to be set slightly below the support level. Once the market reverses and breaks the support, you only need to pay a minimal cost to exit decisively. Conversely, once the market moves in your favor, the profit potential from trading with the trend is often substantial. This small loss and large gain structure is the core of professional trading.
Therefore, Li Hui believes that the essence of trading is actually about seeking mathematical advantages in probability and risk management amidst uncertainty. Trend-following trading is about using the trend to increase the win rate and optimizing the risk-reward ratio at key positions, right? It is not a metaphysics based on empty imagination but rather a probabilistic game supported by data and logic. However, to play this probabilistic game to the extreme, the most challenging part is understanding the logic and integrating knowledge with action. In trading, being able to discern the right direction is basic skill, while being able to withstand loneliness at key positions and waiting for signals is the watershed that separates you from being a novice! If you lack even basic skills, it will be difficult to thrive in this market; of course, you can also come to learn! This may help you a bit!
This article is exclusively published by (WeChat public account: Zhang Lihui 168118) for reference only, and risk is borne by the reader. May we maintain humility and courage amidst the complexities of the cryptocurrency world, fearlessly face challenges, and be bold in exploration. Just as "the journey is long and arduous, I will seek diligently," I hope we keep pace with the times, draw wisdom, travel a thousand miles, weather storms, and gain insights into life.
May you, under Li Hui's guidance, leverage strengths and avoid weaknesses, create value, and remember the market's baptism, never forgetting your original intention. In the wave of digital currency, may we hold on to our beliefs, forge ahead, jointly compose a magnificent future, and share in the joy of success. Let us work hand in hand to create brilliance in this investment journey filled with challenges and opportunities!
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