Five reasons for losing money in trend-following trading strategies and solutions

For trend-following trading strategies, there are five main reasons for trading losses or failures based on actual trading experience:

First, reverse market bottom fishing

The first counter-market operation, bottom fishing, is the reason why most people lose money. Constantly buying bargains because the price is too low in an obvious downtrend, or thinking that the price has fallen too deep and rushing to rebound; constantly selling because the price is too high in an obvious uptrend, or thinking that the price has risen too fast and shorting; these are very risky tricks and habits. Bottom fishing top selling is only effective in sideways volatile markets, but even then, small funds and retail investors should not go short in the case of a big rise or a big fall, but should wait for the price to rise to a clear resistance level and then go short, or buy when it falls to a clear support level and becomes strong. This is the safe way.

If you take advantage of the trend, you are most likely to get it right countless times and wrong once, only at the turning point; but if you go against the market, you are likely to get it right countless times. In response to this, the correct approach should be to give up the top 10% or even 20% of profits and pursue stable and reliable homeopathic profits; that is, you must wait until the trend is established before entering the market. Such profits will earn less than the so-called experts who occasionally copy the bottom and sell against the top, but they are indeed the most long-term stable profits.

Many people have pointed out to me that it is difficult to see the direction of the trend. The definition of a trend is very simple and clear. An uptrend is both a price trend that keeps rising at high and low points, and a downtrend is a price trend that keeps falling at high and low points. If you can ignore small fluctuations and noise, in most cases, as long as you want to see it, the market trend is very clear [up and down sideways]. The reason for not seeing the trend clearly is probably because the observed time dimension is too short [for example, looking at the 5-minute K-line]. If you change to the daily K-line and the weekly K-line, the trend is often clear at a glance.

Second, it is too early to take advantage of the profit position.

The second type of loss is not a loss, but only a small profit in a big market with a clear trend is an important reason for the loss of the overall account. During the development of the trend, as soon as the trend starts to move in one direction, the most likely direction of the trend is still to move in this direction, which is the direction of least resistance. Psychological issues and discipline are key here.

If you want to maintain a profitable trend position, you should have several disciplines and a good mindset.

First, don't try to buy low, sell high, and grab hats in response to small fluctuations in the trend. This approach often results in making a lot of small money and losing a lot of money.

Don't try to grab the head and bottom, but position squaring after the trend has clearly reversed, give up 10% -20% of the profit after the trend band, and establish a new trend direction position.

Third, having confidence in the trend means having confidence in your own judgment, which is very important. How many times have we held the entire trend while keeping an eye on the market every day? Many people have come out of the market early when the trend has just started and they have made some small profits. Holding a position is more important than judging correctly, and perhaps the best way is to stay away from the market and stay away from the market. It turns out that ostrich tactics in trend positions are often successful. Therefore, stay away from the market. Staring at the ups and downs of prices every day and the fear of losing money can make you feel the urge to quickly position squaring to pursue psychological comfort and security, leading to too early exit from favorable positions.

Third, the trend is too short or a false breakthrough.

The trend is too short, it should be said that in the vast majority of cases, this is a reversal in a higher uptrend; a higher level of downtrend induces a rebound; and a sideways breakout is too short, it is a false breakout. In any case, it can be said that it is a good time to establish a reverse position, and it can even be used as an indicator to establish a reverse position for profit. But the trading method requires a firm and decisive stop loss, a quick response, and a clear and effective setting of support and resistance levels.

In essence, a false breakout, a false trend in which the market is too short, is precisely because you are going against the market in a higher level of trend, so the opposite direction is correct. A false breakout, a false trend, points the market in the right direction.

Fourth, the homeopathic position is washed

There will be a normal retracement of the trend. The strategy is to set stop-loss and take-profit points according to the definition of the trend, and keep increasing the take-profit point as the trend develops until the reversal cuts out the profitable position. But sometimes the market will have a large retracement and your position will be taken out, and then the market will return to the original trend. This happens often, after all, the market will not be as perfect as a mathematical formula. In this case, our strategy is to enter the market strictly at the stop-loss and take-profit point and then re-enter the market, and we don't care about entering the market at a higher price [long] or a lower price [short].

Financial transactions must overcome the weaknesses of human nature, such as hope, fear, regret, self-esteem, and other emotions that prevent you from making profits in the market. Selling at 10 yuan and buying it back at 12 yuan is unacceptable to many people, but if you don't, you may miss a large part of the trend.

On the whole, it is often inevitable to be washed out. But how to deal with take profit and stop loss is the key to deal with it. It proves that the position in the opposite market should be positioned squaring as soon as possible, and the price should re-enter the market after being washed out.

Fifth, chase the rise and sell the fall

Trend trading doesn't care about chasing up and selling down, because there are higher highs and lower lows in the trend market. Positions that conform to the trend can always profit as long as they have the patience to wait for the development of the trend. But if you don't pay attention to the timing of buying and selling, you can enter the market at the head or bottom of the short-term, and then the price retracts, and the position is covered; it not only affects the mood and imbalances the mentality; it is also a heavy blow to the confidence of the position. Short-term heads and bottoms are generally caused by the collective buying and selling of the masses. When the general volume suddenly increases, it represents the masses to blindly follow the trend and enter the market. At this time, it is often on the cusp of some short-term speculation and profit-making positions squaring. Then the masses' buying or selling is exhausted, and the price naturally retracts. A good buying or selling point should be based on the sharp drop retracement low in the uptrend [go long], the rebound high in the downtrend [go short], and pay attention to the 50% retracement of a trend. There are also many trends that are often sorted sideways when they are strong. When the sideways are sorted to the important average position, it is also a good place to open a position when they encounter the support or resistance of the average. In addition, when the overbought and oversold value is extreme, if it is too far from the average, do not enter the market. Generally, there will be a consolidation process close to the average retracement.

The five reasons for losses and strategies for dealing with trend trading are a summary of my practice of trend trading strategies in the past two years. It is proposed for trend following methods or systems. In practice trading, there are always all kinds of losses, nothing more than these five. If the analysis is simplified, then almost all losses are related to two points, namely "can't see the trend, can't hold the position". It is recommended that traders should record the losing trades, analyze where the problem is, and classify the losses, so as to know "will die there, and then never go to that place".