Lighten up is a trading behavior that manages account position control. It is a trading skill that we traders must have. The perfect lightening operation can not only reasonably protect the safety of our account principal, but also avoid the threat of profit taking caused by the retracement.
The behavior of reducing positions is not only the control of account positions, but more importantly, reducing positions actually reflects the operating logic and philosophy behind our traders.
First of all, traders who can reduce positions have a deep understanding of trading.
Money never sleeps in the financial market, as long as the principal is still there, anything is possible. However, in the face of huge profits, it is not easy to resist the madness of capital. It is even more difficult to actively reduce positions when the market is still moving in your favor, and the chance of profit is halved. As everyone knows, there are three thousand weak waters, and only one scoop is enough to drink.
Second, traders who know how to lighten their positions have a solid understanding of price action.
Prices move in trends, but price trends don't last forever. Pullbacks are to be expected when prices are overvalued. Trend traders can only stick to the end if they can withstand the profit-making retracement. When the price is likely to retrace, this can be a technical problem that traders spend their entire lives solving.
Finally, lightening up reflects a kind of openness to trading.
Whether we can make money from this transaction, and how much money we can make, has always been determined by the market, and all we can do is follow the market. Use your own trading rules to define the market, and when the signal appears, you should reduce your position when it is time to reduce your position.
In fact, we need to deal with two issues, one is when to reduce the position; the other is how much to reduce the position.
Conditions for lightening up
①When the future trend has exceeded the trader's expectation, it is time to reduce the position
The market has always been an uncertain market. No one can perfectly predict the future trend, not even the next second. Before entering the market, we should rehearse the possible path of price action, how to operate when the price reaches the support level; how to deal with the order in hand when the price breaks through the resistance level strongly . Everything is within the expectations of control as much as possible, but the market cannot allow us to predict all situations. When the price action is no longer within expectations, it may be the best choice to reduce positions.
②When the important pressure level is reached, it is time to reduce the position
Speculator Livermore once mentioned in his memoirs that price action always moves in the direction of least pressure. When the price is close to an important pressure level, (what kind of pressure level is important, I judge based on two: one is that the pressure level is obvious; the other is that the price has obvious order flow after touching this area ) break or not, we have no way of knowing before the price tells us. In order to avoid the risk of profit-taking, this important pressure level area can be used as an area to reduce positions.
③When the position is too heavy, it is time to reduce the position
Trading with heavy positions has always been a taboo in trading. Of course, we can't think of it across the board, and it still needs to be based on the actual situation. For example, when the price is very close to your entry point and the space for stop loss is very small, it is reasonable to take a heavy position occasionally with conditions. However, this heavy position should not be maintained for a long time. When the profit reaches your expected price, it is a very good choice to reduce the position. After all, market black swans often occur, and transaction risks must be guarded against.
④ The price fluctuates suddenly and the indicators deviate, you can reduce your position
At the end of the trend, continuous big positive or negative lines often appear, which is also one of the performances of "bookmaker" shipments. At this time, prices and indicators will appear in a state of deviation. Generally, in this case, the probability of price retracement adjustment is very high, and the operation of reducing positions can be adopted to protect profits.
How to lighten up
The most important basis for reducing positions is still the position, how much to reduce. But there is no fixed answer to this question. It depends more on the individual's confidence in his own trading system, understanding of market trends, and grasp of risks. It can be said that there is no perfect lightening strategy, and different lightening strategies have different effects.
At present, there are three common ideas for lightening positions in the market.
One is: lighten up positions according to a fixed position or ratio. For example, in this wave of trending market, 4 lots enter the market, after the account has made a profit of a certain amount, the position is reduced by 2 lots, and the remaining 2 lots are kept; the price continues to run, continue to make profits and reduce positions...until the end of the trend.
The second is: according to the market, the profit is fixed and the amount is lightened. If you make a profit of 50 points or $500, you will lighten up your position once...and keep going until the end of the trend.
The third is: random positions to reduce positions. This strategy does not have a fixed position limit for reducing positions. When the price reaches the above situation, the position will be randomly reduced according to the actual situation of the market.
However, it is worth mentioning that when there is a profit in our account, protective stop loss (putting the stop loss in the entry position) is also a very good way to protect the principal of the account.
The above is probably the operation idea about lightening up positions. Of course, everyone's trading methods are different, whether it is the timing of reducing positions or the position of reducing positions, it is not the same, and everything should be chosen according to your own trading system. But this cannot deny the position of lightening positions in the transaction process.
——Huichacha Senior Analyst: Porter
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