There are no guaranteed wins in the crypto world, only those who can stay steady. And position management is your 'lifeline' to navigate through bull and bear markets.
Last night, another friend came to me to complain. They clearly made an accurate judgment about Bitcoin's short-term trend, but their account balance decreased instead of increasing. Such stories are far too common in the circle—seeing the right direction but still losing money.
It's like you know where the destination is, but you chose a car with no gas. Seeing the right direction is just the beginning; what really determines success or failure is how you allocate and manage your funds.
01 Why do I always see the trend correctly but still lose money? Three major traps are at play.
The fundamental reason most people lose money is not due to insufficient analytical skills, but rather falling into three fatal traps.
Mismatched rhythm is the first roadblock. The price fluctuations in the cryptocurrency market are like waves, with rises and falls. Even in a clear upward trend, short-term corrections are inevitable. If you blindly chase after highs, you are likely to be 'washed' out by slight pullbacks, missing the subsequent main upward wave.
Loss of control over positions is the second fatal injury. Many investors inadvertently fall into the 'inverted pyramid averaging down' trap: continuously averaging down to lower costs during losses, resulting in heavier positions; yet they reduce their positions too early during profits due to fear of giving back profits, ultimately creating a situation of 'small gains, large losses'.
Emotional trading is the third difficulty. When we face losses, we often hold on to the hope that 'there will be a rebound soon', refusing to stop losses; when profitable, we fear a pullback and prematurely 'take profits'. Trading records show that most people rush to close their positions when they are up 5%-10%, while losses can expand to over 20%.
02 Position Management: The First Rule of Survival in the Cryptocurrency Market
In a cryptocurrency market with a volatility of up to 300%, position management is not just a skill, but an essential survival skill.
Reasonable position management can help you withstand black swan risks. It is common in the cryptocurrency market to see sudden drops of 20%-30%; if you go all in, you may be forced to sell at a loss. However, those who scale in gradually can add to their positions at lower prices, quickly recovering their capital or even making a profit.
My first iron rule of position management is: a single trade loss must not exceed 2% of total funds. This means that even if I lose ten times in a row, I can still retain over 80% of my capital. This rule has helped me through many extreme market conditions.
Position management is also a powerful tool to cope with psychological fluctuations. When you do not overexpose yourself to risk, you can remain calm in the face of market fluctuations and make rational judgments. Investors fully invested often fall into anxiety due to severe account fluctuations, leading to distorted operations.
03 Three Iron Rules: Build Your Position Protection Network
After years of practical experience, I have summarized three iron rules for position management, hoping to help you avoid detours.
First, protect your capital before discussing profits. Surviving in the cryptocurrency market is more important than short-term windfalls. I have set my red line: if a single day's loss reaches 3% of total funds, I will immediately stop trading. This may cause you to miss some opportunities but can better avoid huge losses.
Second, adjust your position based on market conditions. In the middle of a bull market, I will maintain a position of 50%-70% to participate in the trend, while in a bear market, I will reduce it to below 30%, holding most funds in stablecoin form. Different market environments require different risk exposures.
Third, adopt the 'positive pyramid' strategy for scaling in. In the early stages of a trend, I will only invest about 30% of my funds, gradually increasing my position as the trend is confirmed, and reducing the amount added each time. This structure ensures that risks are controllable in the early stages of a trend while expanding profits as the trend continues.
Experienced traders often use the '5 equal parts capital method', dividing funds into 5 parts, with a single position not exceeding 1/5. For example, with a capital of 100,000 yuan, each investment is 20,000 yuan, so even with a 10% stop-loss, the loss is only 2,000 yuan, and the total loss is controllable.
04 Practical Five Steps: Position Management Skills That Beginners Can Master
For new friends just entering the market, the following five simple and practical methods can help you get started.
Segment your positions to say goodbye to one-time 'all-in'. I divide my funds into three parts: 10% for exploratory positions, 20% for adding to positions after trend confirmation, and another 20% as emergency funds. This strategy avoids the risk of buying all funds at high points.
Allocate funds according to risk levels. My principle is: a single mainstream coin should not exceed 25% of total positions, altcoins should not exceed 5%, and the principal for leveraged trading should not exceed 10% of total funds. Different risk levels require different position ratios.
Set your stop-loss first, then calculate your position size. Before every trade, I clearly define my stop-loss point and then calculate the position size based on the distance to the stop-loss point. For example, if the total funds are 100,000 yuan and the stop-loss point is 2% away from the entry price, the maximum acceptable loss is 2,000 yuan, which is used to calculate the number of contracts.
Regularly review your trades to avoid emotional trading. I have set a rule for myself: if I lose three times in a row, I take a forced day off. At the same time, I persist in keeping a trading log to analyze the gains and losses of each trade. This habit helps me identify my emotional triggers.
Use the principle of 'stop, look, and act'. 'Stop' blind trading, 'look' at market trends and individual stock patterns, and 'act' only after waiting for trend confirmation. This simple rule can help you avoid most impulsive trades.
Those who can weather both bull and bear markets have a secret: it's not about getting it right every time, but about losing less when wrong and making a profit when right. Their accounts usually show a healthy trend of 'small frequent losses, large occasional profits.'
An experienced trader once told me: 'In this market, lasting longer is more important than making quick profits.' He has gone through several cycles, and most of the 'big shots' around him have disappeared, but he has steadily grown through strict position management.
The cryptocurrency market is always full of opportunities; what is lacking is sufficient capital when the opportunity arises. Follow Ake to learn more first-hand information and precise points in the cryptocurrency market, becoming your navigation in the crypto world; learning is your greatest wealth!
