Floating profit strategy: analysis of sound thinking in trading

Buffett has stressed that three things are needed to control risk: first, preserve the principal; second, preserve the principal; and third, keep the first two points in mind. It can be seen that the bottom line of risk control is to ensure the safety of the principal. Once we lose the principal, we cannot continue to move forward in the market.

The principal is our transaction cost, and there are two main factors that lead to the loss of principal: one is the transaction fee, and the other is the stop-loss order (ie, the loss order).

The chart below shows that transaction fees are uncontrollable risks that must be paid, and stop losses are also an important part of eroding principal. How to avoid the impact of stop losses on principal? One way is not to trade, and the other is to reduce trading. No trading is obviously unrealistic. After all, we come to the market to find opportunities, so the next best thing is to trade less, which can effectively control the rapid loss of principal.

There is a famous saying on Wall Street: keep an eye on your losses, profits will take care of themselves. This means that we cannot let the principal be swallowed by the market, so we need to trade less. Trading less is not about not acting at all, but waiting patiently for opportunities like a crocodile, and striking decisively once we find the target. But it is not about operating with full positions and heavy positions. It requires strategies and methods, that is, our trading strategy and money management.

Before discussing trading strategies and money management, we need to clarify what kind of market to capture. There are two main types of market conditions: one is a volatile trend-free market, and the other is a unilateral trend market.

We should try to avoid volatile market trends, even if we use a high-selling and low-sucking strategy, because the market fluctuates in the box, the profit margin is limited and difficult to grasp.

Unilateral market is the opportunity we really need to seize. Once a unilateral trend appears, it is the target of key sniping. The core of unilateral strategy is to chase unilateral market and never operate against the trend. In fund management, you can use floating profits and positions. For example, infxtmIn foreign exchange trading, invest 10% of the margin when opening a position for the first time, gradually increase the position after obtaining a certain floating profit, and use the floating profit to resist possible risks in the market. This can not only avoid direct use of principal risk, but also expand profitability.

The above content is an important idea I have learned from trading over the years. Sharing it with you here may provide some inspiration for friends who feel lost in trading.