I have been asked to share my position management skills, and I found that good methods of position management are rarely discussed. So in this article, I will share how I manage my positions. Newbies can take this as a reference.
1. What is position management and what is its use?
The essence of position management is actually to manage the stop loss amount, and its purpose is simply to effectively manage risks. I often say that talking about profits without considering risks is just playing rogue, and the biggest use of position management is to prevent me from being a gambler.
Let's do some calculations. Suppose a gambler has a 99% winning rate. If he is extremely lucky, he can easily make 99 consecutive profits. Even with a basic position of 100u, he can quickly become the richest man in the world. However, he will lose everything in one fell swoop on the 100th transaction. The reason is very simple: gamblers love to go all in.
Let's do some calculations. Assuming a speculator has a winning rate of only 51%, and with average luck, if he sets a maximum loss limit of no more than 10% each time he opens an order, and only trades plans with a profit-loss ratio of more than 2:1, then even if he only has a 100u position to start the game, he does not need any sophisticated technology to easily realize positive returns.
This is the value of position management. Scientific position management is not just about pulling up a percentage on the app and adjusting the leverage ratio randomly. There is not much difference between entering the market with your eyes closed. Did you find that this is why the coin real-time multiple and the profit multiple of the order are always different, and why people with 100x leverage still say they have a light position, but 5x leverage often has a margin call.
2. How to achieve scientific and reasonable position management?
The hardest part of this is to do it. The rest is something that can be easily solved with elementary school education.
First we need to make sure we are trading a plan with an expected profit-loss ratio higher than 2:1.
Secondly, we need to weigh how much risk we can bear in this transaction. Take 100u as an example. The 10% loss of 100u is 10u. Then the maximum loss amount (including handling fee + slippage) is exactly equal to 10u, which is called a light position. The 30-40% loss of 100u is 30-40u, which is called a heavy position. If a single order exceeds half position (50u), then the basic definition is no different from all-in. Why? I believe that those who have all-in understand.
Therefore, the actual contract transaction logic is:
1) Develop a clear trading plan (find entry/take profit/stop loss price) through objective chart analysis;
2) Based on the trading plan and the existing position, determine the stop loss amount and calculate the opening value that allows you to hold the position and sleep well;
3) Copy the opening value to the quantity column on the order page, then click to open long or short;
4) Always repeat the above steps before opening the trading software;
3. After saying so much, what is the difference between me directly adjusting the leverage sliding percentage to open a position?
The difference is that real traders understand that the role of leverage is only to adjust the margin, and it has nothing to do with how much u you earn. When you enter 1u in the "Quantity" column, the profit and loss amount of 1x~125x leverage is the same. The only difference is the rate of return. The rate of return of 1x is pitifully small, while the rate of return of 125x can easily exceed 100 or 1,000.
Have you discovered that what we really need to manage is this "quantity", which is called opening value. For u-based contracts, it is the quantity of u, and for coin-based contracts, it is the quantity of coins.
4. I have entry/take profit/stop loss prices, how do I calculate the opening value?
This is a very simple math problem, just remember this formula.
1) (Entry Price - Stop Loss Price) / Entry Price = Stop Loss Ratio;
2) Planned loss amount/stop loss ratio = opening position value;
Have you given up on learning? If you are still confused, it doesn’t matter. I have made a calculator for you. You are smart enough to find me.
