Determining positions based on losses refers to calculating the size of each trading position based on the maximum possible loss, which means that the maximum possible loss is determined before trading, and then the size of the position to be opened is determined based on this loss. In the trading system, I believe minimizing risk is more important than maximizing profit, as the prerequisite for maintaining long-term net profit is that the principal cannot be withdrawn too much. On this basis, continuously improve the win rate and profit loss ratio to achieve the goal of maximizing profits. Assuming my total principal is 10000 yuan, and I give myself a maximum loss limit of 10% for a single quarter, which is the maximum loss limit of 1000 yuan, then I can divide this 1000 yuan into 10 parts, each of which is 100 yuan, and this will be my maximum loss limit for a single transaction. Psychologically speaking, a single loss between 1% and 2% of the total principal can maintain a good trading mindset. After determining the maximum loss amount for an order, the entry point and stop loss point for the selected target can be determined to calculate the stop loss ratio (after determining the entry point, the profit and loss ratio can also be estimated. Generally, the profit and loss ratio should be greater than 1.5 before considering opening an order). Position=maximum single loss/stop loss ratio. For example, with a maximum loss of 100 yuan per transaction and a stop loss ratio of 5%, 100/0.05=2000 yuan, the position for this order is calculated. On the premise of a principal of 10000 yuan, this position is equivalent to 20% of the position. If this order ultimately makes money, add half of the earned money to the maximum quarterly loss limit. This can not only achieve the goal of snowballing, but also lock in a portion of the profits. Then every quarter, all funds are recalculated. The benefits you will find when trading with a loss based position: firstly, your order to loss ratio is determined in advance. If you want to improve your profitability, you can only try to reduce the stop loss ratio at the time of opening the order as much as possible, that is, try to increase the profit loss ratio. Enter at a more suitable location instead of blindly opening positions. Because if the stop loss ratio is too high, the position will inevitably be relatively light, making the risk return ratio less cost-effective. This is equivalent to your trading system urging you to continuously optimize the entry point. If the position is not suitable, it is better not to enter than to blindly sell. The second benefit is that the ability to withstand risks is the same for targets with different volatility. For example, if a high volatility altcoin and a relatively low volatility S&P 500 index have the same maximum single loss, then the opening of positions for the low volatility target will inevitably be larger, while the opening of positions for the high volatility target will be relatively smaller. This also applies to contract trading, as long as the multiplier is included in the formula. Assuming the maximum single loss is still 100 yuan, with a multiplier of 2 and a stop loss ratio of 5%, then the position=maximum single loss/multiplier/stop loss ratio=100/2/0.05=1000 yuan. You will find that the higher the magnification, the smaller the position. Let's talk about the practical considerations of using losses to determine warehouse positions: Firstly, it is necessary to shift the focus of trading to improving the win rate and profit loss ratio, rather than blindly pursuing single large positions and low stop loss rates. Assuming the stop loss ratio is only 2%, but the win rate is only 1/10, that is, 9 out of 10 opening positions are for stop loss. Although the order to loss ratio is fixed, the total loss is still relatively large. It's like betting on a super high profit to loss ratio for that one profit. Moreover, this method will frequently result in stop loss and have a significant impact on trading psychology. Secondly, what if there are multiple consecutive losses in a single quarter? One way is to actively reduce one's trading frequency and review the reasons for the low winning rate in past trades; Another way is to further divide the remaining loss amount and reduce the maximum single loss amount, so that you can have more trading opportunities (although the corresponding positions will also be reduced). Thirdly, what if the maximum loss limit for a single quarter is used up? My suggestion is to temporarily leave the market, focus on improving internal skills, enhancing one's cognition and trading system, review, read books, or go to relax and change one's mood. We will enter the market again next quarter. Sometimes choosing not to trade is much better than doing trade. Fourthly, the maximum loss for a single quarter, whether it is a single quarter, a single month, or a six-month period, is determined by each person's trading habits. In short, the larger the time period, the greater the maximum loss ratio can be, and vice versa. All the above parameters can be flexibly adjusted, the key is to find parameters that match your trading habits and pace, and then execute them resolutely.