What Do Experts Often Discuss?
When experts get together, they rarely discuss technical analysis. Instead, they focus more on capital management.
There are several types of people in the trading market who do not understand capital management:
1. Beginners, those who are just starting out in the forex market and want to engage in trading.
2. Traders who never worry about money and never have their own capital.
3. Long-term losers who have never overcome the hurdles of technical analysis, having been in the field for years but still stuck in the quagmire of K-charts and indicators.
A sign that a trader is entering a stable and mature phase is their emphasis on capital management, which is an elevation in the realm of trading. All winners strictly follow capital management rules, while losers act impulsively and inconsistently, driven by whims and emotions.
1. Beginner traders need to safeguard their trading funds
When we talk about safeguards, we easily think of danger and war. Since beginners often lack emotional control and trading rhythm, they are prone to impulsive and revenge trading. Therefore, excess funds outside of open positions should be securely hidden away in a “safeguard” account—ideally a separate, unrelated account that's not easily accessed for transfers.
We know that ammunition depots are built in safe areas far from the battlefield. Similarly, funds outside of positions should be kept out of the trading system to prevent easy "detonation." If the market turns unfavorable and stop-loss protocols are initiated, one should calm down, analyze the reasons, and wait for a more prudent opportunity to re-enter the market, rather than trading immediately.
As beginners gradually mature, emotional trading fades away, negative emotions like fear and greed come under control, and their accounts gain a sense of security.
2. Paying any price for the safety of funds is worthwhile. We see the most advanced and powerful weapons carried by American soldiers come with high costs. Yet, the most crucial and valuable part isn't the weapon but the defense system. Only when they are safe can they effectively use advanced offensive weapons. Traders engage in a monetary war, which can be just as brutal as real-world conflict.
In the forex market, as soon as you open a position and expose your funds, you are at risk. Ensuring the safety of your capital should be your top priority, and the risks you take should match your potential earnings and your tolerance for risk. Never take on risks you cannot afford or find difficult to manage.
The risk coefficients vary for different trading instruments. You might still remember the recent unilateral rise in gold. Traders must find the trading instruments that suit them. The rhythm, swing, and trends of these instruments should align with one's physiological rhythm, neurological type, and personal characteristics.
3. Market trading is like being in a hail of bullets, but one must learn to fight small battles.
Some believe that market trading is more brutal than real-life warfare because the market offers no warnings or chances to correct mistakes. To survive, traders must ensure each trade allows for the same level of opportunity for the next few trades.
Avoid going all-in and ending up halving your position or being completely wiped out, leaving you as a "martyr" remembered by the market. Do not trade large contracts that could leave you only capable of trading smaller positions next time. Remember, if a trader loses 50%, recovering while in a demoralized state is nearly impossible, and most will quietly exit after a few more struggles.
Thus, it's crucial to understand capital management. Start with small trades, using only 2% of your capital to build a position. If you profit, great; if you lose, it's only a 2% hit, almost harmless. Adjust your state, trading frequency, and confidence before your next trade.
As stability improves, gradually take on slightly larger trades, progressing methodically rather than rushing into battles that are all or nothing. Technical analysis ultimately deals with probabilities and trends, so you should aim for more trading opportunities instead of relying on a single trade. Professional traders make money because they create countless trading opportunities for themselves.
4. Traders must learn to "let go" and give up
To achieve this, one must master capital management. Going all-in and losing half your position is devastating and hard to recover from; no one can "let it go" in such a scenario. However, losing 2% is much easier to accept and move on from calmly.
Not every market movement is an opportunity for you. Successful traders have unique trading patterns that match their personality, rhythms, and psychological formats. They wait patiently for these patterns to appear, and when they do, they decisively seize the opportunity. Success rates might not be 100%, but even with a 70% success rate, they can continue to profit and sustain their living through trading.
5. The role of technical analysis is extremely limited
One trader with ten years of experience told me, "I watch the technical patterns of gold, and when the opportunity comes, I go all-in based on technical analysis." I replied that his faith in technical analysis might be different from others, and he shouldn't overburden technical analysis.
He asked, "Why?" I explained that going all-in, partially, or even just watching the market is a matter of trading strategy, not technical analysis. Your decision to go all-in is driven by your trading strategy, not technical analysis, which does not play that role.
Traders often make logical errors in their assumptions. Trading based on such misunderstandings leads to chaotic and unsuccessful outcomes. Technical analysis isn't almighty. Its role is highly limited. The main difference between winners and losers lies in trading strategies, such as risk control and capital management. Those who concentrate solely on technical analysis don't realize that trading ultimately hinges on these strategies. Those who grasp capital management will undoubtedly be winners. Emphasizing capital management marks an elevation in a trader's skill and trading mindset.
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