Source: Kigaku Club

The essence of trading is actually making mistakes, and mistakes grow with our awareness. The joy of investing in profit and the pain of losing money are real, but if you don't lose, you don't take risks; if you don't take risks, you won't grow, let alone succeed! Profit or loss, everyone gets what they want from the market. Some people seem to like to lose money, then they succeed by losing money. Investment losses are the cost of making a transaction and a stepping stone to success!

The way to win by investing is not if you read it right or wrong; it's about whether you make a lot of money when you see it right, and whether you lose a small amount when you read it wrong! The rule for successful investing is: “Good losses, small mistakes, big wins.” Traders often don't know that trading is actually a game of “losers,” and those who are best at losing will eventually win. Success always favors those who lose less, those who are good at losing.

Today's financial markets are full of uncertainty, yet people's perception of the world has many biases and shortcomings. Most traders only plan for what they think is likely, the profitable side they consider. This is the biggest mistake you can make in trading — you have to be prepared for the losing side.

Trading is like you never look at cars on either side when crossing the street. Although it was a green light at the time, it ended up in a car accident. There is a small chance that an incident will happen! The same goes for transactions. You must protect yourself against any possibility, and not just prepare for what you think is likely to happen. Unexpected situations may occur during transactions. This situation is called an accident, which means it is very unlikely that it will happen in the first place. The market has been in an unpredictable pattern for a long time. Short-term and long-term trends do exist, but prices do not move according to the trend all the time.

The reason those losers failed was because they didn't know the nature of the market from the beginning, and they didn't know that the market would shift their will. This is no one else's fault; it is only their own responsibility. We must be prepared to assume what is likely to happen, and as long as this possibility exists, we must be prepared for it. This is important for properly understanding the rules.

The right way to invest is to only hold a position when it's proven to be correct

The market will tell you this when your trade is in the right direction; all you need to do is hold a firm position. What most people do is the opposite; they wait until the market tells them that they have made a mistake before considering stop-loss clearance. Think about this. If you don't systematically remove positions that haven't been proven to be correct yourself and wait for the market to tell you that your trade was wrong, then your risk is much higher.

If you wait for the market to tell you that the deal was wrong, you always have to pay more. Your stop loss position isn't necessarily where you can close your position. For example, if you want to stop at $10, you might need 9 yuan to close your position. Let the market tell you that the transaction was correct before opening a position. In other words, trading is a game for “losers”, not “winners.” The meaning of this phrase is: trading is not a game of advantage; if you're not proven to be a winner, you're a loser.

The core spirit of rule 1 is: good losses, small mistakes. In a “loser” game like trading, we start the game against the public, and until proven correct, we assume we're wrong. Until the market proves that our transaction is correct, the established positions must be continuously reduced and removed (we let the market prove the correct position).

The way you think should be: when your trade is right, you can do nothing; not stand idly by when your trade isn't right. Most traders hold their positions until their trades are proven wrong. My opinion is, don't hold positions unless your trade has been proven correct.

Rule 1 emphasizes: read the wrong trend and lose a small amount of money! You need to keep your losses as small as possible, and cut meat as fast as possible. This won't always be right, but it guarantees you'll survive in this game. Why not make a decision that will stand the test of time to change your behavior and achieve the best long-term goals. Trading is not gambling! Treat it as your business, maximize profits and minimize risk in the shortest time. That's what Rule 1 does for you.

Trading is like marching into war. You will first send a team of pioneers to explore the path. If there is a trap, the army stops advancing, and you lose at most a few pioneers, without compromising your overall strength. Trading is like buying clothes; you don't buy clothes home and wear them until they prove inappropriate; instead, before you buy, you try on clothes to prove they're right for you. Look, in your daily life, you spend as little money as possible and waste as little as possible. Why do you behave differently in transactions?

In trading, human nature controls us, everyone knows them, and everyone has to face them; they are fear and greed.

The core spirit of rule two is: win big! Increase your profitable positions correctly and without exception.

This sounds pretty generic; the key point is “correctly.” Perhaps the most common jargon you hear is “stop loss,” but stop loss is just one side of the coin. Without rule two, you'll find that trading isn't even a game where the probability of profit or loss is half to half. If you don't have a proper way to increase your profitable positions, you may never be able to recover your losses. Rule 2 guarantees that when you trade correctly, you have a large percentage of your position. You must hope that when you enter a market with clear trends, you can have larger positions to guarantee more profit. When applying Rule 2, you must use Rule 1 in a reasonable manner.

At the same time, most traders are also afraid that the market will go in the opposite direction, thereby taking away their existing profits. Normally, they are overwhelmed by watching their losing positions lose money day by day, and as soon as their profitable positions start, they are in a hurry to close their positions. This is the reaction of human nature in the market. Human instincts are actually an obstacle when it comes to trading. A good strategy for increasing profitable positions is to double your positions. This is the correct way to increase positions. At the same time, you must always make profitable positions larger than those that are likely to lose. “No exceptions” means that the increase must not be determined by the trader's own subjective will.

Combined, these two rules guarantee you maximum profit with minimal losses in the long run. Large losses are the main reason some traders have been evicted from the market. These rules are the foundation for your survival in the market and can help you reach your trading goals: minimum risk for maximum return. Some investors have already filled their positions as soon as they enter the market, but this is not in line with the main purpose of Rule 2. The increase in positions should be gradual, that is, gradually increasing positions according to expected price changes until the position is full.

You should understand that when you feel like you're making the right decision in the market, this is just the beginning of a trade; when you cash out, you shouldn't shout at the world: Look how right I am! I'm asking you, who cares if you're really doing the right thing? What if you're right? If you can keep your losses within a very small range and not win a little every time, you'll be the best trader! You should keep that in mind now.

If you really want to have the ability to make a living or make extra money by trading, you should add chips to your profitable positions. Otherwise, you can only protect your capital at most. On trading days when you have a chance, you must seize the opportunity to maximize your profit, so you can make up for your losses. You shouldn't trade just to trade, you should trade for your own survival.

Rule number two not only allows you to reposition when the position is right, but also reduces your losses when the position is wrong. Similarly, rule 2 can also prevent you from overtrading, because throughout the trading process, don't fill up your positions when you first enter the market; they should only increase their initial position once the market has proven that the position is correct.

What is more important than using rule 1 is to make good use of rule 2. You will have an advantage in trading and make a lot of money by watching the right trends. You must use the rules to successfully make profitable positions more profitable. If you don't plan in advance when opening a position and increase it after the position has been proven correct, you are at most just playing a game of five or five wins and losses. If traders can't add more after opening a position, once the original position is proven to be wrong, they will lose as much as the profit they expected. If these disadvantages are not changed, trading will always be a loser's game.

Editor/Jeffrey