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What to do when trading encounters consecutive losses?

2024-05-25

Biography of a Stock Market Master

"King Cobra": Graduated from Fudan University in 2011 with a master's degree in economics. He started trading stocks in 2010 and entered the trading market in 2014, making it to the list of stock market masters on several occasions. He believes that investing with small funds and growing from small to large is the preferred way to enter the speculative market. The reason for using "King Cobra" as his nickname, he said: "The extraordinary agility of the King Cobra is essential for engaging in intraday short-line trading."

I. Question from a fellow trader: Hello, teacher! I have been trading for three years and often fail to predict the market trend, which leads to losses. In trading, should we predict the market? What is the significance of doing so?

King Cobra: The answer is affirmative. There is a popular saying that we should not predict the market but follow it. What this means is to emphasize adaptability and not be bound by prior predictions. When we prepare for trading, we must certainly study the structure of the target trading market. Within a given time frame, we need to determine whether the market is in a fluctuating structure or a trending structure, what kind of technical pattern it presents, and the possible future trends and their corresponding probabilities. Therefore, in the process of analyzing the market, we do have a prediction of the market trend.

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With this prediction, we can decide whether to go short or long, or to remain on the sidelines. At the same time, because of this prediction, when we observe the actual market trend, we also have a reference for comparison. So, predicting the market itself is not a problem; the key lies in how to view the actual changes in the market trend. Any prediction of the market trend needs to be verified by the actual market trend. If it is found that the actual market trend exceeds the range predicted in advance, then the previous prediction should be revised.

In addition, in the uncertain world of the speculative market, precision has always been a great luxury. Therefore, predicting the market should not overly pursue precision; using ranges instead of specific points is a more reasonable approach.II. A question from a fellow trader: I am an ordinary trader who has been trading for several years and has always hoped to become a consistently profitable trader. However, most of the time I am in a state of loss, and it is a continuous loss. How should I face long-term losses? Is there any way to change the current situation?

"King Cobra": In the speculative trading market, no one can sail smoothly. When trading is not going well, stubbornly contending with the market is a common problem for traders. At this time, bad luck may be one aspect, and there may be more issues with the prediction of the market and the execution of the trading plan. What's worse, the emotion of anger will further make these problems more difficult to deal with. Therefore, when your trading has a continuous loss, you must immediately stop trading, do not try to fight with the market, and do not lose all the trading funds in a wave of the market.

No matter what, you must learn to admit defeat and prioritize preserving the principal. Start new trades when the market is clear, opportunities are better, and your mood is calm, which is wise. After temporarily leaving the market, you need to calm down and spend some time to sort out and digest the gains and losses of previous trades, which is a process of growth and progress.

According to the author's trading experience, when there is a serious loss or even a margin call and other adverse situations, it appears that there is a problem with the trader's operation on the surface, but the deep-seated problem is often psychological. Therefore, mature traders must establish a psychological adjustment mechanism to reduce the ups and downs and fluctuations of the trading state as much as possible.

Similarly, some traders have also encountered continuous profits. When you have continuous profits and have closed the profit orders, you can pause trading and take the initiative to step out of the market and watch from the sidelines, which will definitely help us view market fluctuations more calmly and objectively. Continuous profits may just be due to good luck, so don't be arrogant, and consider market issues more cautiously, make trading decisions more cautiously, to avoid possible Waterloo. Here, I would also like to emphasize that after obtaining a large amount of profits, you must remember to withdraw funds appropriately, which is also a very important risk control measure, especially for heavy traders.

III. A question from a fellow trader: Recently, I often encounter system failures, and it feels like all trading indicators are invalid. In the process of learning to trade, I spent a lot of time learning and mastering various technical indicators. I also often hear some traders advocating the "uselessness of indicators," are these technical indicators useful?

"King Cobra": I have heard many traders complain that technical indicators are not useful. In this situation, it is either that these traders have a big problem with the specific use of technical indicators, or they have unrealistically high expectations for the role of technical indicators. In fact, technical indicators are not a panacea for predicting the market, but they are not useless either.

Technical indicators are without exception statistics and measurements of past and just-occurred market conditions, and the technical significance they contain has a certain predictive value, but the predicted situation is not 100% likely to actually happen. For example, in the K-line pattern, the bearish engulfing pattern has a stronger technical significance for the top reversal than the dark cloud cover. But if the next K-line closes above the high point of the bearish engulfing pattern, it means that the reversal signal is invalid, and the previous uptrend continues.

This shows that using a single technical indicator to predict market trends is obviously far from enough. The meaning of technical indicators and patterns at the daily, weekly, and monthly levels is much more reliable than those at the 4-hour and below levels. Compared with medium and long-term trading, the role of technical indicators and patterns is also much weaker in short-term and ultra-short-term trading. In actual trading, we need to comprehensively analyze the market structure from multiple dimensions such as technical, news, and fundamental aspects.IV. Q&A from Friends: I feel like the trades I make are like gambling, and sometimes it seems like the odds of gambling are even better. Why is that? Is it because I haven't grasped the essence of trading? What is the difference between speculative trading and gambling?

"Krait King": Betting on uncertain outcomes is gambling, and there is no problem in viewing speculative trading as a form of gambling. In the casino, only extremely skilled gamblers can win money. Similarly, in the speculative trading market, only extremely skilled traders can profit, while the vast majority of traders are heavily losing losers.

To enter the ranks of the few winners, you need to gradually explore a set of speculative trading skills that match your personality traits and clearly match the market conditions. Using a small amount of capital to accumulate slowly and participate in speculative trading with small stakes is a universal skill. Starting with too much trading capital from the beginning and being accustomed to gambling in trades is the biggest mistake made by many traders who are heavily in debt.

Only participate in the market conditions you can understand, and most of the time, wait with an empty position, which is another universal skill. Wanting to eat all the market conditions is undoubtedly an unrealistic fantasy, and you need to carefully identify and select appropriate trading opportunities.