Crypto Investment Diary 1/29 - Trader Practice

Today, I want to sort out my recent learning and trading experience, as well as my practical experience. By publishing these things in the investment diary, I want to give myself the power to supervise. Readers with more experience and strength than me should be able to judge whether this person is making progress, and I hope that I will look back at these diaries in the future, and can tell myself calmly that I have tried my best to learn and improve.

A few words to remind readers that these contents are customized for my own needs. Everyone has their own strengths and weaknesses. Therefore, the focus of my training must be different from yours. You are unlikely to follow my training contents. It has the same effect as me, but since I am only a very beginner trader, these trainings are almost all basic required courses, so it may also be helpful for other beginners.

The order in which the following content appears is purposeful, and is arranged in the order of understanding and practice. If you don't understand it well in the front, it's meaningless to practice later. However, in practical operation, it will be necessary to start the execution from the subsequent trading plan. Please pay attention to the difference between the execution order and the learning and understanding order.

Control of "hazardous parts"

The first step in trading is to know where you can risk exposure. For example, if I have a principal of 100,000 yuan, if the next transaction fails completely, the proportion of my principal loss will be risky risk. Therefore, if the transaction fails, I will lose 30,000 yuan, and my risk position is 30%.

The choice of risk positions is a mathematical problem. I once described in my trading diary the most important concept that Mark Ritchie taught me : If you have a 50% win rate on each trade, you can get 120% of your stake if you win, and lose 120% of your stake. If you lose 100% of your bet, how much risk would you choose for each trade?

After a trial calculation, I got 10% of the answers to the dangerous parts . That is to say, if I have a principal of 100,000 yuan, and the winning rate is 50%, I can only lose a maximum of 10,000 yuan per transaction. On the contrary, if the transaction is successful, I can earn 12,000 yuan. According to simple arithmetic , such transactions are profitable.

This practice is aimed at the weakness of " I lack feeling for the size of each bet ". Someone can know how much money to bet on each trade by feeling. I am not such a person. I usually bet too big because of greed Want to make an unreasonable percentage of profits. Still using the example above with a principal of 100,000 yuan, I would have the urge to double it to 200,000 all-in with one transaction. With the above 50% win rate, I have a 50% chance of succeeding in one shot, but There is also a chance that the other half will lose all their chips on the first trade.

But as long as the above 10% risk position is controlled, the fastest can be reached after 5 consecutive successful trades, and it can be reached after 16 trades on average (half success and half failure, remember 50% winning rate) . Even if you are unlucky and fail to trade 16 times in a row (1 in 65536 chance), you still have 1853 yuan in chips, and you can stay on the floor to continue trading.

For the above trial calculation, I have opened the Google spreadsheet for your reference: Trader's spreadsheet . You can copy it to your own spreadsheet, adjust the parameters and play around, and find the "risk position" and "trading success rate" that suit you.

Always set a " stop loss"

No matter how well the risk position is done, if there is no stop loss, if you encounter a black swan (no major event expected), you can be washed out of the market in an instant within a transaction.

Remember that on 10/25 last year, after the Chinese leaders announced their full investment in the research and development of blockchain technology, Bitcoin soared by 43% within 24 hours:

As long as you happen to be short on those two days (the perpetual contract of futures holds a short position), and the leverage exceeds 2.3 times (this is already considered extremely conservative in the futures market, usually 10 times or even 20 times leverage is used), When you wake up at night, there will be only 0 yuan left in your account, in other words, you have been decapitated (Liquidated). Even if it turns out you were right, Bitcoin fell all the way for a month, but you who didn’t set a stop loss would have been washed out of the market long ago and could not make money from your short positions.

The operation of stop loss is to continue the setting of the risk position in the previous step. Once I confirm the number that I can lose in this transaction, and then match the price of this transaction, I can calculate the price in the worst case. Must be forced out . Appearance means that if you are long, you must sell it unconditionally, and if you are short, you must unconditionally buy it back.

The practice of stop loss is aimed at three points:

1. The cryptocurrency market is extremely volatile and has no limit on ups and downs , and almost every year encounters black swan events (such as the 10/25 days mentioned above), traders must have their own protection mechanisms to avoid losing their heads.
2. Stop loss is one of the ways to implement the control of risk positions .
3. Or for my own greed, many times I want to enter the market in a hurry (usually for fear of missing a trading opportunity), and buy at a bad price. At this time, if I force myself to set a stop loss, due to the limitation of the risk position, stop The price of the loss is usually not good, causing the stop loss to be triggered too easily.

The third point is more difficult to understand. I will try to give an example: if the trading plan (see the next training step) is to extend the 4-hour uptrend to go long , but I am easy to be anxious, I will be anxious to buy in the red circle on the left side of the picture below. Enter, the stop loss price is poor at this time (remember that the stop loss price is limited by the risk position, and cannot be moved down at will), in this example, I was stopped the next day, although the 4-hour moving average continued to rise later (representing the transaction The plan is right), but I have already stopped out.

On the contrary, if I have the patience and wait until the price returns to the moving average (green circle on the right), the stop loss price after buying at this time is below the moving average, which is less likely to be triggered.

Therefore, the side effect of strictly setting the stop loss is to let me enter the market impatiently and easily get kicked out by the stop loss set by myself. Such a mechanism forces me to wait patiently for better opportunities.

In practice, the stop loss is more important than the calculation of the risk position. If the risk position is not calculated well, it may be lost in a few weeks, but if the stop loss is not done well, it may be lost tonight. But the order of training should be understood from the dangerous part.

Formulate and strictly adhere to the "trading plan"

The Trading Idea is the concept based on which I make this trade. This is also the key difference between retail investors and connoisseurs. Retail investors usually say that they are “bullish” about something and buy it. His optimism usually comes from news, and news is usually released by speculators for retail investors to see.

"Being optimistic" is not a trading plan. I am bullish on Bitcoin, but it does not mean that I should buy Bitcoin in my next trade. My usual trading plan:

• Follow the trend : There are two types of trends, up or down. In the uptrend, you should go long, and in the downtrend, you should go short. There are different time scales for judging trends. I often use two types: daily line and 4-hour line. I consider this trading scheme to be low risk.
• Over Bought or Over Sold : Sometimes the market will enter a very irrational situation, which is not common. Usually 2 to 3 of the 100 K-lines are in this state. It is easy to pull back, so there is a type of plan to wait for the market to overheat. It is often judged by the RSI indicator. It should be noted that the standard of the cryptocurrency RSI is more extreme. The RSI can reach 80 or even 90 and continue to rise without looking back. Digit RSI. In addition, as long as the RSI cools down, you should exit whether or not the price pulls back, because after the RSI cools down, it usually continues to rise or fall along the original trend. This type of trading scheme is moderately risky.
• Bottom/Top Fishing : This is the most dangerous trading plan and the one with the highest return on investment. There are various methods, some use Fisher's retracement chart, some use ABC wave theory, and some use Wickford theory. In my experience so far, the failure rate is very high, and this operation is also the most likely to make traders lose their minds, and anger with the market will eventually lead to a lot of losses, and it is necessary to strictly observe the stop loss.

According to my trading experience in January, the 4-hour trend of cryptocurrency is more suitable for me at this stage. The current difficulty is how to grasp the first wave of rising. Usually, when the trend comes out, EMA12/26 will have a golden cross, which is my mentality at this time. In the previous down stage, it is easy to be fearful. At this time, there are many reasons to be careful, all of which are valid, but have nothing to do with this trading plan:

Distinguishing "the content of the transaction plan" from other "correct but irrelevant doubts" is the core ability to execute the transaction plan .

Taking the 4-hour trend plan as an example, the EMA12/26 golden cross is the signal to enter the market. At this time, the trend is usually just formed, and the trend will be very fierce. Usually, the moving average cannot be pulled back, but in hindsight, as long as the golden cross , even if you enter the market far from the average, it is not easy to be stopped and exited. The most difficult thing to overcome at this stage is fear . Once the first wave has gone up, if you want to re-enter the market in the future, you will have to wait for the moving average to be pulled back. The most difficult thing to overcome at this stage is greed . Once both stages are missed, the risk of re-entering the market will become higher and higher (because the trend has been going for a long time, more and more people follow it, and in the world of trading, the more people do transactions, the less profitable it is) , Most of my failed trades occurred after the first two stages, whether it was to enter the market to do the trend, or to go the other way and try to find the bottom or grasp the head, it usually did not end well.

This idea of "doing the opposite" is the beginning of leaving the trading plan. The worst nightmares start like this, so I wrote "Draft" and "Strictly abide by" in this practice. These are two independent The training and strict adherence are much more difficult than planned.

My current experience is to keep my body and mind in a healthy and ideal state, and before each trade, stop and think again what is my trading plan? What am I going to do now? Is the action consistent with the trading plan? Then stop again, leave, come back and think again. I can't stress enough how important it is to "stick to the trading plan": just leave the trading plan, and you start the road to nightmare, and it's just the beginning, and you will lose the previous ten profits later. Moreover, this habit of leaving the trading plan is guaranteed to be destroyed sooner or later, along with the principal on hand, and it is difficult for you to understand why it has come to this point after it has happened. I have had more than one experience, and the above-mentioned psychological state can only describe the psychological turning point during the period when I recall the process of the incident afterwards. I don't want to make the same mistakes myself, and I also want to help others avoid having to make mistakes before they learn: sticking to a trading plan is extremely important, without a plan, there is no trading!

Note: Strictly sticking to the trading plan means that you will miss all opportunities outside the plan. This will require a psychological breakthrough: first realize that the purpose of my trading is to get rich through trading (yes, be honest enough , you and I don’t just want to make a small amount of money in trading, but also want to get rich by doing it at the bottom level), and through mathematical calculations, I know that as long as I continue to grasp my trading plan over the years, I can achieve the goal of getting rich. Only by stabilizing your true intentions can you strictly abide by the trading plan and give up other opportunities outside the plan.

Online trading vs offline trading

The above preparatory work has been completed, and the rest is the actual execution. Here I divide it into two operations:

• Online trading : people keep staring at the trading line chart soberly and execute the plan. For example, when executing an over-buy or over-sell trading plan, you will need to keep watching the changes in RSI to find the entry point. After buying, if it is a very short-term line (such as the 5-minute line overheating), you should continue to watch the market until the target Reached (RSI cool or price in place). If it is above the 4-hour line, the stop loss and stop profit positions will be calculated after entering the market. After setting, you can go offline without watching the market.
• Offline trading : Most of my transactions are offline transactions. I will complete the trading plan in front of the computer, place an order on the exchange (including entry, stop loss, and stop profit orders), and then set a price alert on the mobile phone, and then I can offline. The rest of the job is to regularly go online to check the changes in the market, and then adjust the order according to the changes if necessary. For example, if the trend goes as expected, I usually adjust the stop loss gradually to get closer to the entry price, and ideally it can even exceed the entry price. , which means that this transaction is definitely profitable, and there is only the difference between making more and making less.

My experience tells me that online trading takes a lot of time, and in the long run, the profitability is poor, especially when the psychological barrier of strictly sticking to the trading plan has not been broken through, it is easy to look at the line chart and start to make mistakes. related transactions. So this practice for me is to keep offline transactions mainly . The specific method is to record the transaction, and then continue to track it. If it is 5 times offline and 1 time online, I think it's okay. If it's 3 to 1 or even higher, make a change.

Transaction Record

I've been keeping a record of trades, and I thought I had some kind of obsessive-compulsive disorder and had to keep track of every trade I've ever made. Later learned from several trading experts the importance of keeping records for ability improvement. I now understand two facts:

1. Maybe I do have an obsessive-compulsive disorder that just happened to be recording my own trading behavior, which in itself is neither good nor bad. (It's a hassle, and I've been struggling to give up on logging.)
2. If you want to improve your trading ability, you need to be very clear about the transactions you have done, so that there is a basis for improvement. Recording is a very effective means to achieve this goal.

After a period of improvement, the most important fields of my current transaction record include:

• Principal: How much money I have in my account before the trade starts.
• Risk position: The highest loss in this transaction.
• Entry: The price at which to actually buy (or sell, if shorting).
• Stop loss: The price of unconditional exit, I use the spreadsheet to help me calculate it based on the risk position above.
• Stop profit: The price of the expected exit, I use the spreadsheet to help me calculate it based on the preset profit ratio. Currently, I use 150% of the risk position as the profit ratio.
• Actual Exit: The price at which the actual sell (or buyback, if shorting), more than one trade ticket exits from time to time, I have an average price calculator in the spreadsheet.
• Trading plan: Be sure to record which plan the transaction is based on, including the time frame. For example, going long with the 4-hour trend is a trading plan.

Regarding the transaction history, I have opened the version I am currently using for your reference in the same Google spreadsheet: Trader's Spreadsheet .

My recent trading plan

From the perspective of Bitcoin market share ( BTC.D ), nearly 70% of the funds in the cryptocurrency market still flow to Bitcoin, so my trading plan is still dominated by Bitcoin.

Since the low point (6,435) was seen on December 18 last year, BTC has rebounded 47%. Although the daily line is in a clear upward trend, I still hope to see the daily line level pull back to order, which will be more reassuring. Against this background of time and space, I have recently formulated three trading plans:

• 4-hour uptrend : Since January 2020, the best trading plan is to follow the 4-hour uptrend. Don’t worry if you miss the uptrend, you will have the opportunity to pull back EMA12 to increase your overweight. If you can pull back EMA26, it is even more Unpredictable.
• Daily uptrend : Looking back at the April-June period of last year's sharp rise, the daily line usually rose along the EMA12, so this wave of uptrend can also be added when the falling moving average is caught.
• The key price turning point : the above two are long, but in the near future when the daily RSI is gradually higher than 70, I think there should be a small amount of funds ready to go short. My method is to find the resistance price above. At present, I refer to other experts , the key position you see is $9,600, and you can place short orders nearby, but you must strictly adhere to the stop loss of the violent position. Under the strong bullish atmosphere, any resistance price may be passed by the car. After soaring past the $6,000 mark, at the end of 2018, that position had been held for almost half a year, and it was possible to cross it in a light boat.

My trading plan will be updated in tradingview. Interested parties can follow: MichaelWang66 (the language may need to be adjusted to English to see).

Epilogue

Frankly, I don't know how many readers this diary content will help, two, three? I still don’t have one... Many times I also think: Based on my hourly salary, these diaries are not cheap anymore. In addition to the time to write them, the cost of spending time studying on my own is unimaginable for outsiders, so why do I have to write them? come out?

However, I also thought that the greatest benefit for anyone who writes a book or a speaker is himself. I use words to write out the invisible thoughts in my heart, which helps me to see many blind spots in it, and also helps me to be more sure of some vague ideas. concept.

I am sure that cryptocurrency is the most potential market in this era, and it is also the wildest market. I want to use the training of traders to ride the sails of the times and sail forward.

Bitcoin Tip: 3QqoDDrvWNZs6Gf9ZfD2gdbidhcdKs4kxJ