The secret to earning more and losing less under the rule
I still remember when I first entered the crypto space, I was like a headless fly bumping around. I learned hundreds of methods, stayed up late watching the market every day, and the result was that my account balance kept decreasing. Until I gradually understood a principle: complexity does not equal effectiveness.
Today, I will share with you the 6 core trading rules that I have distilled from my practical experience. These are the essence I summarized after trying and testing with real money. I hope it can help everyone avoid detours.
1. 123 rule: Capturing key signals for trend reversals
The 123 rule is the cornerstone of my trading system, particularly suitable for identifying trend reversals. This rule is based on Dow Theory, but I made some adjustments in the cryptocurrency market.
Its core consists of three steps:
1: Price breaks the original trend line (for example, breaking the downtrend line in a downtrend)
2: Price retraces but does not break previous lows (in an uptrend) or does not break previous highs (in a downtrend)
3: Price breaks the previous high (in an uptrend) or low (in a downtrend) to confirm the trend reversal
I have found that many people tend to overlook one point when using the 123 rule: volume confirmation. A real trend reversal will always be accompanied by increased volume. If there is just a price breakout without significant volume change, it is likely a false signal.
In my practice, combining the 123 rule with the 4-hour chart yields the best results, filtering out market noise while not missing the main trend. When the 123 rule confirms, that's when I boldly enter.
2. The 2B Rule: A tool to identify the traps of the main force
The 2B rule is my favorite counter-trend trading tool, specifically for dealing with false breakouts in the market.
What is the 2B rule? Simply put, it's when the price seemingly breaks through previous highs or lows but quickly pulls back, forming a false breakout. This pattern usually indicates that the main force is 'inducing buying' or 'inducing selling'.
The key indicators I use to judge the authenticity of the 2B pattern:
The magnitude of false breakouts typically does not exceed 1%
Quickly returning to the original range within 3 K-lines after the breakout
Volume during breakouts is usually less than 70% of previous levels
In the cryptocurrency market, the 2B pattern has provided me with multiple high-probability trading opportunities. Especially when the price is at significant resistance or support levels, the reliability of the 2B signal is higher. My experience is that a false breakout followed by a true reversal often comes with great force.
3. The Double Rule: The secret to letting profits run
The Double Rule solved my dilemma of 'when to take profit'. This rule states that when the price breaks out of the consolidation pattern, it will often run at least twice the height of the consolidation range.
Whether it’s rectangle consolidation, triangle consolidation, or head and shoulders, this rule often works. I usually set the first profit target at twice the height of the consolidation range, and then decide based on market conditions whether to continue holding.
The benefit of this rule is that it makes the risk-reward ratio predictable. If my stop-loss is set outside the consolidation range, the risk-reward ratio is generally quite considerable. This is also why I often say, 'A good trade knows the risk-reward ratio before entering.'
4. The Two-Thirds Rule: Grasping the best breakout timing
The two-thirds rule is an important principle in the time dimension. In symmetrical triangles and other consolidation patterns, real breakouts often occur two-thirds of the way through the formation time.
This means that if I believe a triangle consolidation will last for 3 days, the likelihood of a breakout is highest around the 2nd day. If the price continues to operate within the triangle until the end before breaking out, the reliability of such a breakout is actually poorer.
This rule has helped me avoid the urge to enter early in consolidation patterns and keeps me alert for late breakouts. In the cryptocurrency market, time is money, and mastering the timing of breakouts is crucial.
5. Parameter Balance Rule: Find the indicator settings that suit you
I used to be obsessed with finding the 'perfect parameters' but later understood a principle: indicator parameters need to balance sensitivity and reliability.
Small parameters (like a 10-period moving average) are sensitive but produce many false signals; large parameters (like a 30-period moving average) are reliable but lag behind. There are no perfect parameters suitable for all market conditions.
My solution is to accept the imperfection of parameters and choose according to my trading style. If you are a short-term trader, use small parameters; if you are a trend follower, use large parameters.
What I value more now is how to understand the market psychology behind the indicators, rather than getting hung up on parameter sizes. After all, indicators are just tools; the real decision-maker is yourself.
6. Space-Time Equivalence Rule: The key to predicting market size
'The longer the horizontal, the deeper the vertical' - this old saying still holds in the cryptocurrency market. Patterns that consolidate for longer periods often have greater potential after breaking out.
I pay special attention to those compact patterns formed near key positions after lengthy consolidations. These patterns are like compressed springs; once released, the energy is incredible.
The space-time equivalence rule has taught me to patiently wait for real big opportunities rather than chase every small fluctuation. In cryptocurrency trading, patience is one of the rarest qualities.
My practical insights
After years of practice, I deeply realize that mastering simple and effective rules is more valuable than learning complex indicators. These rules endure because they reveal the essential laws behind financial markets.
But remember, there is no 100% accurate rule; only reasonable risk management and persistent discipline guarantee long-term profitability. My personal hard rule is: the risk of a single trade should not exceed 1% of total capital, which is my assurance for a good night's sleep.
Additionally, emotional management is the biggest challenge for traders. Most of my early losses stemmed from greed and fear, rather than technical judgment errors. Now, I clearly document the reasons and plans for each trade to avoid emotional interference.
I hope these shares are helpful to everyone! Remember, surviving in the cryptocurrency market is more important than short-term profits. Let's grow steadily together in this opportunity-filled market.
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