This article speaks to the hearts of all traders

Many people in the trading market think that trading is "technology", but in fact this is not the case. The essence of our trading is risk. So how to understand risk is a very important proposition. I divide risk into two parts, one is market risk and the other is human risk.

1

market risk

When you enter the market, you must take risks. Enter the market at a loss or at a profit. Risk and reward are inherently two sides of the same coin, and profit and loss come from the same source. Therefore, face up to risk, don't be afraid, but pay enough attention.

Risk management is ultimately two things, what to do before the risk comes, and what to do when the risk really arrives. Risk management must have an early warning mechanism, for example, do a good job of analysis before the arrival of predictable major risk events, the possible direction of the event, the corresponding direction and market level of each trend must be known.

For example, the Scottish referendum in the fall of 2014, when the event began to be focused on by the market (risk warnings should be cautious and long), the pound plummeted 600 points, rebounded as the possibility of Scottish independence was expected to decrease, and fell another 250 points on the day of the results (buy expectations, sell facts). Analyze the possible direction of events before major risk events, and know what the corresponding outcome of each trend is. It is better to miss it than to do it indiscriminately, and not to fight unprepared wars.

So the problem is, known risk events can be planned, but what about the unknown? No one can predict this in advance, so use money management to manage it. There are always some friends who like to show off how high their winning rate is and how accurate they are. If they are still in the state of seeing how many times they are right, there is still a long way to go.

The reason why 95% of people in the market lose money is mainly to take a little and run when they are right. When they lose money, they will make a small profit and lose a lot. The system expectation is negative, and the final result must be a loss. The correct rate and the profit-loss ratio are the front and back of the coin, and both need to be taken into account. In fact, many professional traders value the profit-loss ratio more.

The old man Soros said more bluntly, I don't care how many times you read right or wrong, what matters is how much money you make when you read right, and how much money you lose when you read wrong.

Regarding stop loss, the meaning of stop loss is to determine the maximum allowable loss of a single trade before entering the market, determine the lower limit, and use this as the rear basis to make profits. The above talks about what to do if there is a sudden risk event in the market. Very simple, there are only two situations at this time, one is to break the stop loss, and the other is not to break the stop loss.

Such unexpected risk events are still within the risk control rules formulated in advance. If you kill it, don't worry about it, wait patiently for the opportunity to prepare for the next shot. If you don't kill it, determine whether to continue holding or position squaring according to market conditions.

It should be noted that setting up a stop loss does not mean that everything is ready. Some friends are softened by the stop loss. Stop loss must first comply with the risk control rules. Set a stop loss is not to be knocked out. Stop loss is to prevent sudden risk events. At the same time, it is also to cut off losses if you read it wrong or see the other party's direction but enter the market at the wrong time.

The frequent loss of stops must be due to the reliability of the stop loss. To improve the reliability of the stop loss, it is necessary to work hard on technical analysis. On the other hand, when setting the stop loss, improve the time structure. Relatively speaking, the support resistance level at the daily level is more reliable than the support resistance level at the 1-hour level. Once the stop loss is set, it is not easy to move the stop loss, let alone cancel the stop loss. So you must be careful and planned before entering the market. When the opportunity comes, you can take action. If there is no opportunity, you must stop it.

2

Human Risk

First of all, let's make it clear that since we are human, there are human limitations. The simplest example is that the human eye can only receive visible light, which is only a small part of the electromagnetic spectrum. Excuse me, is seeing is believing? If this sentence is true, what are the corresponding prerequisites?

Everyone's growth experience is unique, but everyone's limitations must exist. The world in our brain is not the real world. So be aware of your own limitations, be humble, and reflect on yourself often.

Human risk is actually much more terrifying than market risk, and liquidation and big losses are basically the problems here. What causes people to take a little and run away when they make money? What makes people carry it when they lose money? If you make some money, you are afraid of losing profits, so you quickly position squaring, which is driven by fear.

When you lose money, you have to hold on to it. You always hope that the loss can be made up, and you may occasionally be able to carry it back or even make a profit, but as long as you make a mistake once, the loss will get bigger and bigger until you exceed the psychological limit and have to position squaring or directly liquidate your position. Greed, expectation, pride and conceit can all make you lose a lot of money. As far as trading is concerned, there are a few stubborn diseases:

The first stubborn disease: paranoia

When people interact with each other, they will encounter the situation of meeting for the first time, and the first impression created by the first meeting will affect our brain for a long time. The first impression is basically the basis for future interactions. Is this what rational people do? This is actually a kind of attachment.

When it came to trading, he liked to chase after a certain god at the beginning of trading, and his admiration was palpable. One day, a certain god said that the outlook for the euro area was not optimistic, and the future was not optimistic about the euro. In the end, without saying a word, it was empty, and the stop-loss and take-profit positions were completely ignored. How could the god be wrong? Therefore, the tuition fees were paid again and again, which was also persistent.

For example, a certain student studied fundamental analysis and technical analysis for N years, and one day deduced through various means and came to the conclusion that the euro was bearish, so it was OK to open the short and wait for profits. After a while, he found that something was wrong. How did the euro go up 500 points?

Is the theory failing? I have studied so many theories, and I have spent a lot of thought on each one. How could I be wrong? Continue to empty. Later, watching the floating losses get bigger and bigger day by day, I couldn't bear the position squaring in my heart. Within a few months, the euro fell sharply. This is a typical reaction of clinging to the opinion without looking at the market. Is there a solution to clinging to the opinion? Yes.

Soros had a mentor in college named Karl Popper. One of the ideas that had a great impact on Soros himself was falsification. When it comes to trading, it means that no matter what opinion you hold, you can be bullish or bearish, but you must be soberly aware that the so-called opinion is just a judgment based on your own logic. It is an assumption, and if it is proven wrong, it is wrong. If it is not proven wrong, it can only mean that it is not wrong for the time being, but it may be proven wrong at any time.

When you truly understand that your own judgment is just one of the many assumptions of the market, you will not easily fall into the world of ego. In the world of ego, all the arguments in support of your opinion will be magnified, and all the arguments against your opinion will be selectively ignored. You will fall into ego without knowing it. One time may make you a lot of money, but in the long run, you only need to make one mistake, and you will basically return to the rhythm before liberation overnight. Always reflect on yourself and prevent ego.

It is necessary to constantly improve the self-logic and make it more relevant to the market logic. Usually, it is always said to grasp the main contradiction, and that is how it is. When you understand that a point of view is an assumption, you must always remind yourself not to be single-minded, respect the market, and remember that the market is always the boss.

The second most stubborn disease: suffering from gains and losses

Don't be happy or depressed because of the gains and losses of one city and one pool. The outcome of the battle between the two armies is the final result, and don't affect the subsequent battle because of one gain and loss. At the same time, you need to be vigilant that every time you make a move, you must comply with the system before making a move, rather than trading impulsively or at will. Don't care too much about the gains and losses of one city and one pool, and follow the system.

When we put forward a hypothesis as a basis for entering the trade. Once we enter the market, there will be profits and losses. At this time, we are not calm, and the changing heart of floating profits and losses also rises and falls. The market is still the same market, and the list is still the same. Why is there a deer in my heart?

The essence is driven by fear. With floating profits, I am afraid that profits will disappear, and the position squaring will leave. Fear of losses is a fact, and I hope that losses will decrease or even return to profits. It is fear, but also madness. The market is still the market that teases you. The market does not rise because of you, nor does it fall because of me. After entering the market, I was torn half to death, ridiculous? Don't laugh, it's all like this.

Before entering the market, you will hold a long or empty point of view and enter the market in turn. After entering the market, you will be tortured by various temptations, fear, greed, and persistence. There are human pits everywhere. How to solve it? From two to one, from the swing of many and empty, gains and losses to a stable trading system.

It doesn't matter if you are bullish and bearish, it doesn't matter if you gain or lose, and you implement the trading system seriously. Small profits, small losses and big profits are all within the acceptable range, and big losses are strictly prevented. Take it if you are right, cut it if you are wrong, and use risk control to make money. The system naturally has positive expectations.