For friends who do transactions, they often think or talk about a question, that is, what is the core essence of transactions?
Some people say that it is to take advantage of the trend and light positions; some people say that it is to follow the intrinsic value; some people say that it is to break through the range and enter the market...
What they said is correct, but these are only at the level of methodology, not the essence.
The core essence of trading is the game spread.
Why do you say that?
Let's first look at what is a transaction? It is a sale, one buys, one sells, and when they are matched, it is a transaction.
What is the purpose of our transaction? Just to make money.
The process of a profitable transaction is to buy low and sell high, or sell high and buy low; the price difference is the profit.
Whether you are in the stock market, the futures market, or the gold currency margin market, if you want to make a profit in a transaction, you must play the price difference and realize the profit!
Even if many fans of value investing in the stock market want to make a profit, they still have to play with the price difference-buy low and sell high.
Not to mention the highly leveraged transactions in the futures market and the gold currency market, which are also buying low and selling high; or selling high and buying low.
Even for enterprises, factories, stores, and vendors, their profits are formed by the aggregation of price differences in each transaction, large or small.
Therefore, the core essence of trading is always the game spread.
Then the question comes, how can the transaction better realize the price difference? Or what is the key to making money in trading?
When we talk about buying low and selling high (or selling high and buying low), we actually have to solve two problems—buying well (low) and selling well (high).
If you don't know when to buy and when to sell, you will never be profitable.
In other words, if you earn today and lose tomorrow, you always earn less and lose more, but you will never be able to make stable profits, or even survive in the market.
For example, if you buy well but sell poorly, you will not make any money, or your profits will often shrink sharply.
Or if you buy poorly and sell well, sometimes you can make some money, but the difficulty is greatly increased.
Whenever the bull market is at the top, that is, when the market is the craziest, it is often when a large number of retail investors enter the market, and they are eventually trapped on the hillside or can only cut their flesh out of the market. The most fundamental reason is that if you don’t buy well, it’s hard to sell well.
Therefore, it is necessary to buy well and sell well. In other words, the entry and exit must be just right.
Everyone understands the truth, so how to do it?
I have summarized the following 4 points to share with you, hoping to inspire you:
1. Build a system: build a trading system with positive expectations.
2. Formulate principles.
3. Observe discipline.
4. Constantly cultivate the mind and optimize the system.
Let's look at the specific steps:
1. Build a system: build a trading system with positive expectations
We all know traders who don't have a system, they trade by feeling when they trade. You ask them why they are long or short at this price, and the answer is always one reason today, and another reason tomorrow, with no consistency; what's worse, some people still have a blank look-they just feel that it is going to rise or go up. fell...
The funds of traders without a system are like a mob. No matter how strong their funds are, they will be short-lived. It is only a matter of time.
Systematic traders, on the other hand, have some rules when trading. Although they may not be able to make long-term stable profits, at least they have a consistent basis for entering and exiting the market.
So what is a trading system with positive expected value?
The so-called positive expected value trading system is a trading system that obtains a positive result after trading according to the system rules for a relatively long period of time.
In other words, it is a trading system that has been proven to be stable and profitable.
So how can we build such a trading system with positive expectations? Two ways:
1) Learn from someone close to you or someone you know--surely someone who has achieved success in this area and is willing to teach you.
That is, this person is willing to teach you his trading system with positive expected value without reservation. This requires background, luck, fate, etc., which cannot be met.
But this is a "shortcut".
2) Build it yourself. Since there is no such "master", then everything can only depend on oneself.
But this is destined to be a road full of hardships and bumps. And the process may take a lot longer than you think.
There are many ways to make a profit in trading, but countless people who use the same method to trade and lose money.
Whether it is fundamental analysis or technical analysis, a system that can make long-term stable profits must include but not limited to the following three elements:
* A set of methods. This set of methods is a tool for evaluating when to enter, exit and increase or decrease positions.
* risk control. Various unexpected situations will inevitably occur during trading, and countermeasures must be taken to minimize risks in time.
* Money management. It must be very clear what is the proportion of funds in a single trading position and what is the proportion of funds in a total position. These must be designed and allocated before the transaction. Good money management can help you survive in this market longer.
When you have built these elements, the next step is to continuously test, verify, and then polish it into a profitable system through continuous trial and error.
As for how to polish it, it depends on the method you choose and your personality. No one can do it for you, you can only rely on yourself.
This process must have been accompanied by great pain and frustration...
Until one day, you finally built this trading system. If you compare the trading system to a car, then congratulations, you have built yourself a sports car with superior performance, and you can drive it in dangerous situations. financial markets.
2. Formulate principles
You may be thinking, can't I start the money printing machine now and collect money lying down? Then you are thinking too much.
Even if you have the "Dragon Slaying Knife", you may not be able to become a martial arts master.
Although you have built yourself a sports car that is much better than others, but think about it, in your daily life, can you drive this sports car on a rampage and run amok? By the way, no. You have to abide by the traffic rules, otherwise it will be difficult to guarantee that you will not be killed in a car crash!
So in trading, even if you have a good system, you must also formulate trading principles. Trading with a system and no principles is not much better than having no system.
Kant said: "Man makes laws for nature".
You also have to legislate for the market .
Just like the important role of the constitution in ensuring the stability and long-term stability of the country and society, your trading principles are the "constitution" of your trading system.
This "constitution" is generated in conjunction with your trading system, it is the foundation of your trading system, and it is the fortress for your survival in this so-called "the most difficult industry in the world".
In fact, you have already generated certain principles while building the system, but these principles are not specific enough and comprehensive enough.
Now it is a comprehensive formulation of principles at the strategic level. For each position you trade, under what circumstances you can enter the market, under what circumstances you must exit the market, under what circumstances you cannot enter the market, under what circumstances you need to reduce your position, etc.; clearly formulate the principles in all aspects, the more specific and more accurate you are. The clearer the better.
When we review the market, we always feel that the market is so clear at a glance; but at the moment, the market is always changing, and we always feel specious and ambiguous, don’t we?
Through trading principles, a lot of market noise can be eliminated and the trading winning rate can be improved.
Emotions also often influence our behavior. Think back, how much loss, loneliness and pain have you endured wandering alone between heaven and hell? How many sleepless nights have you passed? In the depression and anger again and again, the transaction is made worse...
Trading principles can also eliminate emotional interference and make transactions more rational.
When you have formulated a comprehensive trading principle, you will find that the frequency of your trading has become lower, which is a good thing-the door to wealth has been opened to you!
3. Observe discipline
Now you understand very well that as long as you make good use of the trading system and enter and exit the market according to the principles, you can make stable profits. From now on, you can sit back and relax!
Then you underestimate the weakness of human nature - greed and fear !
We stare at the board every day. The red, green and green K-lines represent wealth, and there are devils and angels hidden in each line. They constantly lure us: "Come in, this wealth is yours. !", constantly tempting us to break the trading principles to enter and exit the market...
You may ask, will the principles you set up not be followed?
Think about it, how many New Year's resolutions, reading plans, and fitness plans have you made? How much did you do again?
So we need to be disciplined. There is a system and principles, but if you don't follow the discipline, your funds will only be relatively short later. Because every mistake you make could be fatal and set you on a path of no return!
In trading, to put it simply, discipline is execution. Once the principles are formulated, they must be strictly enforced. This requires us to be highly self-disciplined.
Execution, or how to cultivate self-discipline? You can use the little things in life to cultivate, such as what time to go to bed every day, when not to use your mobile phone, or to implement a fitness plan, etc.
"If you don't sweep a house, why sweep the world?"
When you develop iron-like executive power, you can clearly see the wealth behind the door beckoning to you!
4. Constantly cultivate the mind and optimize the system
1) Constantly cultivate the heart
Don't expect to be able to roam the rivers and lakes after learning a nirvana. People who can really walk the rivers and lakes and stand tall for a long time may not have many nirvana skills, but they must be people who have been practicing internal strength for a long time and then have deep internal strength!
The inherent human weakness of human beings cannot be overcome by us in one or two years. How many talented traders finally came to a tragic end because they could not overcome their own demons...
The examples of Livermore and Nick Leeson sound the alarm to us from time to time—traders who don’t pay attention to cultivating their hearts will repeat the same mistakes from time to time. Even if they have excellent equipment, they only live a little longer .
Constantly cultivating the heart is the homework that every trader must do in his life.
2) Continuously optimize the system
The market is like a living body that will continue to evolve.
Institutions, consortiums, traders, retail investors, etc. participating in the market are playing a game of survival of the fittest, and those who can finally stay in this market are elites who are constantly learning and evolving.
Therefore, we must continue to learn and optimize our trading system to adapt to the continuous evolution of the market.
(It should be noted that optimizing the system is not transforming the system. Optimizing is taking a little bit of measures to make it better; transforming is hurting muscles and bones, and often the gains outweigh the losses.)
"Heaven is healthy, and a gentleman strives for self-improvement."
A trader who can make stable profits in the financial market must be a person who has done a good job in the above four aspects, and is still learning and evolving.
— final words —
You may be a little worried, why is it so difficult to make money from trading? Yes, it is so difficult to make long-term stable profits in this market, and this is the only way to go. Or, you don't enter this market.
Making a living trading has never been easy.
We are fighting in the market with a kitchen knife and troops with submachine guns. In addition to learning to hide and protect ourselves, we also need to learn to wait, be willing, etc...
When the market does not give you a chance, you must endure loneliness and suffering; when the market gives you an opportunity, don't doubt or feel anxious, but act decisively and go forward; when the market does not give you a profit, you must react quickly and immediately Admit the compensation; when the market gives you a profit, accept it as soon as it is good, and don't try to let the tail of the fish go.
Trading is like life condensed. When you realize the true meaning of trading, you also understand the true meaning of life.
Trading makes life more profound and exciting! Let your mind be more free!
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