In the currency circle, if you manage your positions well, you will outperform most people. How you manage your positions directly determines your risk level, average position price, and final profit. This can be said to be the most important point besides direction and mentality.
What is position management?
Position management means that when you decide to enter the market, you set a plan for opening, adding, reducing, and clearing a position and conduct comprehensive management of each link. Good position management is one of the important means for us to avoid risks, which can minimize losses and maximize profits.
Good position management is one of the important means for us to avoid risks. It can minimize losses and maximize profits! How should positions be managed? Is there a standard? One of the most critical reasons for the failure of many traders is that they regard market analysis as all aspects of trading, as if they can determine victory or defeat as long as they analyze the market. In fact, the actual market situation is only the most basic work. What really determines the outcome is the work after market analysis, which is the issue you consider after entering the market. Position management includes fund management and risk control. The word "position" should not be understood to indicate the meaning. Position is more about when to increase the position, how much to increase, and where to reduce the position and how much to decrease. That is, the road map of “entering the market, increasing the position, reducing the position, and exiting the market”.
So what is a position?
Position refers to the ratio of the total amount you use for trading and the funds that have been completed.
For example, if you have 100,000 yuan for trading and have spent 30,000 yuan to buy coins, then your position is 30%, which is a three-level position. This buying behavior is called opening or building a position.
If half of the total capital is used for buying, it is called half position. The proportion of buying funds to the total funds is small, which is called light position. If it accounts for a large proportion of the total funds, it is called a heavy position. Buying again after opening a position is called adding to the position. When part of a position is sold, it is called position reduction. All selling behavior is called liquidation. Holding a position without selling it for the time being is called a position. Always keep part of the position without operations, which is called a bottom position. After selling everything and no more buying, it is called a short position.
Six basic principles of position management:
First: Don’t operate with a full position and always maintain a certain proportion of reserve funds.
Operating with a full warehouse is like fighting on the battlefield without reserve troops. Especially when the market is unstable, if the full position operation falls, it will cause a passive situation of difficult buying and selling. If you sell, you will suffer a loss. If you don't sell, there will be no extra funds to add positions to dilute the cost. When other market conditions come again, there will be no funds available or you will be out with losses. Holding a full position will cause mental imbalance due to market fluctuations. A full position operation is more likely to result in a liquidation of the position rather than the fantasy of getting rich overnight.
Second: Buy and sell in batches to reduce risks, dilute costs, and magnify returns. The advantage of buying in batches downwards and selling in batches upwards is that your average price is lower than others and your income is higher.
Third: When the market is in a weak position, you should hold a light position, and it is best not to exceed a half position in a bear market. When the market is strong, you can place heavy positions appropriately. In bull markets, it is recommended that the limit position be at level 8, with the remaining 20% short-term or reserve funds to deal with unexpected events.
Fourth: As the market changes, corresponding position adjustments should be made, and positions should be increased or reduced appropriately.
Human beings are alive. When the market is strong, I can appropriately reduce my position and grab some profits. When the market is weak, I can appropriately cover my position and reduce costs. This is to make corresponding adjustments.
After adding a position, a slight rebound in price will be very close to the cost or exceed the cost.
For example: when the trend is obviously downward, the position should be reduced. When the trend begins to stabilize and rise, positions should be increased. When you are unsure about the market and do not understand it, do not place a heavy position or increase your position easily. When you see support, you can add to your position, and when you see pressure, you can reduce your position and realize your profits.
Fifth: When the market is down, you can take short positions and wait for opportunities to come.
At the end of a bull market, at the beginning of a bear market, or before the bottom stabilizes, you can short-term or light positions and wait for opportunities. However, as long as you want to fight in this market for a long time, don’t be short for a long time, because if you don’t participate for a long time, you will slowly lose your judgment on market changes. sensitivity, disk feel, etc. Or you can use the short market to operate with a small amount of funds, sum up experience and skills, and exercise your trading sense. Short market operations can be carried out accordingly at the end of the bull market and the beginning of the bear market. this point is very important
Sixth: Exchange positions: keep the strong currency and sell the weak currency.
Regardless of rising or falling, as long as there is fluctuation, it is good. If the market fluctuates, there will be opportunities to make money. If a currency is sideways for a long time or the fluctuation range is small, you need to change positions flexibly. Instead of falling in love with a certain currency, you should choose wisely. . Seize other market opportunities.
The above 6 principles apply to spot and contract
The method of position management is to operate in batches
Batch operation refers to the act of dividing the invested funds and opening, increasing or reducing positions in batches. Batch operations can be completed within a day or over a period of time.
Why do you need to take these actions? Because the currency market is unpredictable, and rises and falls are high-probability events. No one can accurately predict short-term price fluctuations, so you must set aside enough funds to deal with unpredictable fluctuations.
If you do not have enough confidence and carry out a full position operation, once the market changes in the opposite direction, it will cause huge losses. Therefore, the risk of full warehouse investment can be reduced through batches, and costs can be diluted, which is the basis for reducing costs and amplifying returns.
How to batch: divided into two types: equal batching and non-equal batching
First: Equal portion allocation, also known as the rectangular buying and selling method, refers to dividing funds into equal parts and buying or selling them in sequence. The proportion of funds for each purchase and sale is the same. Usually 3 or 4 equal parts are used. For example, buy 30% first, and then buy 30% if you start to make a profit. If you don't make a profit, no new funds will be involved for the time being. When the price of the currency reaches a certain high point or the market changes, the positions will be reduced and sold in batches.
Second: non-equal allocation, which refers to the different proportions of funds, buying or selling, such as 1:3:5, 1:2:3:4, 3:2:3 and other different proportions. The shapes produced according to the proportion are divided into: rhombus, rectangle, hourglass shape, etc. The pyramid trading method is commonly used.
Third: Same funds and same positions, use different methods to compare.
Pyramid: 1,000 for 5 floors, 1,100 for 3 floors, 1,200 for 1 floor, average price 1,055
Inverted pyramid: 1,000 for 1 floor, 1,100 for 3 floors, 1,200 for 5 floors, average price 1,144
Equally divided rectangle: 1000 buys 3 floors, 1100 buys 3 floors, 1200 buys 3 floors, the average price is 1100
When the price rises to 1200, profits will be made respectively: pyramid 145, inverted pyramid 56, rectangle 100
The price fell to 1000 and the losses were respectively: pyramid +55, inverted pyramid -144, rectangle -100
It can be seen from the comparison that the pyramid type has the least cost and the profit is greater when the price rises. When prices fall, risk tolerance is stronger. The inverted pyramid is just the opposite. If the price drops to 1,000, the inverted pyramid will lose 144. In practical application, it is more reasonable to use the forward pyramid method when buying and the inverted pyramid method when selling.
After the currency price drops sharply, when it bottoms out and we are not sure whether it has reached the bottom, if we buy at this time, we are afraid that it will continue to fall and be trapped. If we do not buy, we are worried that the market will reverse and rise and we will be short, so we can use the pyramid position building method.
Give a chestnut:
A certain currency falls to 10U, buy a 20% position, the price falls to 8U, and then enters 30%. At this time, the average cost is 8.6U.
If the market continues to fall to 5U and then enters 40%, the average price will be 6.5U.
If the price rebounds by 6.5 yuan, the capital is guaranteed. If it rebounds to 10U, it is equivalent to making 3.5U. But if you buy with a full position when the price is 10U, you will just unwind when the price returns to ten yuan.
When the currency price rises, the buying position should be larger when the price is lower, and the position should be gradually reduced when the price gradually rises. This buying method belongs to the right side of the position. Such costs are relatively safe. Even if the market falls as long as the holding cost does not fall below, there is no need to panic.
Since this method has a heavy initial position, it has relatively high requirements for the first entry and requires a grasp of market fluctuations, so it is suitable for technical players.
The inverted pyramid selling method is the opposite of the upright pyramid. It is wider at the top and narrower as you go down, resembling a funnel. When the currency price rises, gradually reduce the number of coins held, that is, the number of coins sold increases as the currency price rises. This is about how to reduce or clear positions.
The core of position management is the above points. After understanding it, I believe you will have an idea in the future, whether it is to open a spot position or a contract position.
Let’s do practical teaching below
Spot warehouse management
Example: You have one hundred thousand U, then you have to divide it into ten parts! Prepare to buy ten coins! Each currency is allocated 10,000U! Every entry is the same amount of money!
Example: Open a position in XX currency, 50% of the position at XX price, 50% of the position at XX price, where 50% of the position means that 10000U is allocated according to the standard of each coin, and 5000U is reserved for opening a position of 5000U to cover the position.
A big taboo in spot trading is to hold heavy positions that you are optimistic about and light positions that you are not optimistic about.
This coin is good, buy more when entering, buy 30,000 U.
This coin is so-so, buy 10,000 U when entering.
When operating, you should buy the same amount of each coin and strictly follow the above example! If you don't follow this position, a problem will occur. The 30,000 U coins you bought with a heavy position lose 10%, which is 3,000 U. Then the 10,000 U coins you bought with a light position will even increase by 100. Ten out of ten, that’s only 1,000U, so you’ll still lose money.
Contract position management
The position allocation of ETH is calculated according to the number!
The maximum number of 1000u principal positions cannot exceed 5
The maximum number of 3000u principal positions cannot exceed 10
The maximum number of 5000u principal positions cannot exceed 20
The maximum number of 10,000u principal positions cannot exceed 30
The maximum number of 30,000u principal positions cannot exceed 50.
The maximum number of 50,000u principal positions cannot exceed 100
BTC position allocation is calculated based on the number!
The maximum number of 1000u principal positions cannot exceed 0.5
The maximum number of 3000u principal positions cannot exceed 1
The maximum number of 5000u principal positions cannot exceed 2
10000u principal position cannot exceed 3 positions at most
The maximum number of 30,000u principal positions cannot exceed 5
The maximum number of 50,000u principal positions cannot exceed 10
In fact, the initial principal of each contract is the same, and the number of orders placed is the same. Only in this way can you be able to handle the profit when it is necessary, and take the loss when it is necessary.