Why do you always make small profits and then suffer a big loss, taking away both the principal and the small profits from before Taleb wrote about this 20 years ago He's called asymmetric leverage, which means that the same amount of money has different effects in both the up and down directions Taleb, an options trader who has been on Wall Street for over 20 years He wrote "Black Swan," "Antifragility," and "Asymmetric Risk," and during the 2008 financial crisis, he relied on tail hedging to more than double The wave of circuit breakers in March 2020 saw his advisor's fund increase by over 3000 percentage points in a single month Most people spend their whole lives wandering around on the concave side, thinking it's just bad luck First, let's take a look at the shape Concavity: Your profit curve bends downwards When you make a profit, it's a small profit, but when you lose, there's no bottom line The greater the fluctuation, the more miserable you will be, because the loss on your left is open Convexity: The curve bends upwards Cap when losing, no cap when earning The greater the fluctuation, the more advantageous you will be The same market trend, falling on two structures, results in two species Why will this structure eventually explode 1/Probability has deceived you When making small money, the winning rate is very high and looks stable But what determines the long-term outcome is probability multiplied by odds Winning rate of 90%, odds of 1-10, long-term dead end If that 10% appears once, then wipe the first 90 times completely Repeated bets, the tail will arrive sooner or later 2/Loss asymmetry in the world of multiplication Earn 10% and then lose 10%, leaving you with 99% Losing 50% requires a 100% increase to recoup costs Losing 100% means permanently returning to zero, and increasing tenfold is useless The profits accumulated from ten small gains can be cleared with one large loss This gameplay forces you to guess correctly every time There is no upper limit to losses, so you must know which one is an exception Taleb's original words were, fragile things need to be predicted Once you start relying on predictions, you have already lost The most gloomy thing is that it's rewarding you The small amount of money is deposited time and time again, and the curve is smooth and upward, which gives people a sense of control So the position grew bigger and bigger, until a certain sum ate up all the previous positions This structure is specifically designed to cultivate confidence first, and then clear it all at once Common appearances Sell options to collect premium High interest wealth management and fund management Single order with leverage, carry orders without stop loss Short term operations that rely on winning rates to make a living, run when you make a little profit, and bear when you lose How to solve Taleb 1. Reverse the structure and ask the worst-case scenario first This money is zero, are you still living as usual Only then can we continue discussing the odds 2/Only buy things with a bottom line for decline and an unlimited top line for rise The lower limit is supported by cash flow and consensus, while the upper limit is based on everyone's emotions Emotions have no limit 3/Block a single loss first, then discuss profits The upper limit of losses is up to you, don't leave it to the market and liquidation price 4/Use barbell, don't compromise One is extremely safe, the other is extremely radical The middle piece is the most fragile, looking at stable assets with a little leverage, it's all gone with just one incident 5/Move the channels for earning small money to use as insurance premiums Cash flow, content, rebates, and small communities are stable sources of income Its purpose is not to make you rich, but to keep you alive in the worst of times with bullets 6/Keep a portion of cash Cash doesn't make money, but it allows you to sell when others are forced to I crawled out of this structure myself At the beginning of trading Having a large margin and large position to earn a small profit before making a profit and exiting the market, this is the structure of sustained small profits and a wave of major losses resulting in heavy losses Slowly changed to a small position with small margin, and then significantly increased the duration of the position and the corresponding limit of the position, forming a structure of using small capital to gain large profits Reverse the structure of making small money and losing big money throw a sprat to catch a herring