I have a friend who has been trading in the foreign exchange market for almost a year and lost some money. Once I saw him trade, he went long and then went short, and then went short again, over and over again, earning less and losing more, and then asked him: "You are short for a while, long for a while, 0.3 lots for a while, and 0.1 lots for a while. , 0.5 lots in a while, what are your trading rules?" He replied: "I am not a trader in an institution, what rules do I need?"...
In fact, many traders have this problem, that is, there are no rules for trading.
There is an old Chinese saying: there is no rule, no circle.
No matter what we want to do, we must abide by certain rules in order to be able to do things successfully and well.
Trading is no exception. Only when we trade according to the rules every time can we finally achieve the goal of stable profitability.
Just like driving, no matter how good your driving skills are, you still need to obey the traffic rules, otherwise you will not be able to ensure your own safety, let alone reach your destination.
What exactly are the trading rules? What does it do?
Trading rules refer to certain rules formulated by traders based on their own trading concepts and analysis methods, which provide clear instructions and norms for traders' trading behavior.
Its role is to limit and weaken the freedom and arbitrariness of traders' trading behaviors, standardize them, and maintain consistency.
So why bother to formulate trading rules? Can't we trade freely if we do business ourselves?
Because the risk of trading in the gold foreign exchange margin market far exceeds the perception of many people, and the purpose of our trading rules is to allow us to control the risk as much as possible.
These risks mainly come from two aspects:
1. Systemic risk
Systemic risks are everywhere, mainly caused by political, economic, interest rate, war, social and other factors. Its complexity and uncertainty are beyond our expectation and avoidance, but it will lead to huge fluctuations in market prices.
The most impressive thing in recent years is the Swiss franc black swan incident, which directly led to the bankruptcy of many large institutions, not to mention the liquidation of many small retail investors. Although the probability of such an event happening is very small, it cannot be ruled out if you want to become a professional trader.
Another risk comes from "financial giants". We all know that price fluctuations are caused by the participation of funds. There are many institutions, consortiums, large investors, etc. in the market. The funds they have are unmatched by ordinary retail investors. , It often happens that a certain "billionaire" trades contracts worth billions of dollars, which directly causes the market price to skyrocket or plummet.
Think about it, have you ever been hurt by one of these pumps or dips?
What can we do in the face of such unpredictable risks?
What we can do is to work hard on fund management and formulate corresponding rules so that we can control risks as much as possible.
Second, human risk
Human nature risk is manifested as the weakness of our human nature, and the negative impact of the risk caused by it.
Daniel Kahneman, the winner of the Nobel Prize in Economics, mentioned prospect theory in his book "Thinking, Fast and Slow", in which the relationship model between possibility and decision weight points out that when people face the gain or loss of wealth, they will Taking a special mode of preference, the possibility of event occurrence directly affects people's decision-making: when people are more likely to gain wealth, they will be afraid of losses and take risk-averse behavior; and when people are more likely to lose When there is wealth, you want to avoid losses and take risky behavior.
This explains very well why many people are unwilling to stop the loss when they have a small loss, but take risks to carry the order, so that the loss is getting bigger and bigger, and finally "cut the meat" when they can no longer bear more pressure. This leads to a large loss; and when there is a small profit, they are worried that the profit will fly away, so they choose to pocket it for peace of mind. If things go on like this, how can you make a profit if you lose a lot and make a small profit?
These are actually the weaknesses of human nature, which have been controlling the trading behavior of most people unconsciously.
Desire and mood swings are the most common human weaknesses. Desire often blinds our eyes, and emotional instability and uncertainty are often the culprits that cause us to lose money one after another.
Desire constantly drives us to work hard and act, and greed is one of the most basic desires. After finally waiting for an opportunity with a high winning rate, many people will think about trading heavily, but accidents often occur and cause large losses. Once a large loss occurs, people's emotions will fluctuate greatly, and then there will be a chain reaction, and then there will be a disaster...
The harm caused by human risk sometimes even exceeds the harm caused by systemic risk.
So how can we get out of the pit of human risk?
Only when we formulate some trading rules in advance in order to prevent the emergence of human nature risks, and constrain our hearts and transactions through trading rules, can we try our best to avoid the influence of human nature risks on us.
Therefore, trading rules are the real magic weapon for you to navigate the market. It not only allows you to effectively control the harm of systemic risks, but also avoids the impact of human risks as much as possible.
So what rules should we make? Or how to make rules?
Everyone has different personalities, different analysis methods, and different conditions in all aspects, so it is necessary to formulate trading rules that are in line with their own actual conditions. However, some general rules must be followed:
Technical rules : when to enter the market, when to increase the position, when to reduce the position, when to exit the market, and the profit and loss ratio of the entry;
Risk control rules : what is the risk percentage, what is the stop loss range;
Position rules : how much is the position for each entry, how much is the position for a single product, and how much is the total position;
Other rules : how many consecutive stop loss breaks, how to punish for breaking the rules, how to reward for a few times (or how long) following the rules in a row, and so on. (The establishment of a reward and punishment mechanism will help us abide by the rules and transactions.)
Formulate all the above rules clearly, the more specific and clear the better; after that, slowly fine-tune them in the process of practice to achieve the most suitable and efficient trading rules.
Then trade according to the rules, so as to standardize our transactions, maintain consistency, avoid human interference, and control risks to the greatest extent; and because of the consistency of transactions, it will be easier for us to maximize our strengths and avoid weaknesses in the later resumption. get progress.
— final words —
After formulating the rules, you have to strictly abide by the discipline to make the transaction more secure. Whether we go to school, work, or live in this society, there are many rules that bind everyone. Only in this way can the society run orderly and well.
The trading rules are formulated by ourselves, and there is no supervision by others, so we are required to have a high degree of self-discipline and not have a fluke mentality. Many excellent traders often get lucky once after sticking to it for many years. It's all about losing. (Think how trade genius Livermore ended up.)
And gradually you will find that our inherent human weakness is difficult to overcome. In many cases, it may be due to the limitation of our thinking and structure that we have been unable to improve, so there is a saying - you will never earn what you think money beyond knowledge.
There is an old saying: " Kungfu lies outside poetry. "
So we still need to constantly cultivate our hearts. The ancient sages and sages have left us too much precious wealth, just waiting for us to absorb it. We can read more books on philosophy and mind to improve our cultivation.
Never underestimate the influence of human weakness on us. It can control us unconsciously and invisible. In many cases, we can hardly notice it. This is determined by the genes that have evolved in our bodies for millions of years, so we It can only be bound by rules, and in a sense, let our transactions be free, so that we can make steady progress on the road of transactions, and finally let our lives be free!
mutual encouragement!
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