Can you talk about your trading logic in detail?
My trading logic is primarily divided into two aspects: one is the profit logic of trading, and the other is the technical logic of trading. In layman's terms, it's about how you plan to make money in trading and what kind of money you aim to earn. What technical means will you employ to achieve the goal of making money—following trends, trading ranges, or reversals?
I'm not one for overly mystical concepts, so I'll stick to practical ideas and examples.
1. How do you plan to make money in trading, and what kind of money do you aim to earn?
Everyone's logic and philosophy in trading differ. For instance, some are high-risk enthusiasts who hope to make quick and substantial profits through high-leverage trades, aiming for multiples of their initial investment. Thus, their trading logic is one that pursues enormous profits.
Others prefer trades with controllable risks and reasonable profits, not seeking excessive gains. They are content with a 30% to 50% annual return (I fall into this category).
There are also risk-averse individuals who dislike the pain of losses and wish for their trades to be as stable as possible. Lower profits are not a concern for them, such as long-term value investors in the stock market who are very satisfied with an 8% to 10% annual return.
We won't judge the right or wrong of these three profit logics; each has its strengths and weaknesses and suits different people. However, we must firmly remember one point: the higher the profit pursued in trading, the higher the risk that must be undertaken. There is no such thing as low risk for high profits. As profits increase, the difficulty of trading will also increase, and stability will deteriorate. This is a reality we must face.
Therefore, choosing which profit logic to follow requires self-analysis—what kind of risks can you accept, and what consequences can you bear? It's like having a clear understanding of yourself before playing a game, not choosing a difficulty level beyond your capabilities, or else it will be very difficult to complete.
The higher the risk, the higher the profit in trading, and the more it demands a strong inner resolve, extraordinary composure, superior trading skills, a perfect trading plan, and the risk of a potential margin call. The slightest mistake could lead to irreparable losses.**Risk-controlled transactions are more suitable for the vast majority of us. Although the profits are not as high, and there is no huge thrill of making a fortune with a small investment, the mentality during the transaction is more peaceful, and the behavior in the transaction is less likely to go awry. The requirements for technical skills and one's own reaction capabilities are not as demanding. Everything may seem ordinary, but the money can be steadily earned. Therefore, choosing a trading logic that suits oneself is extremely important, and never overestimate yourself.**
I have chosen the second type of trading logic, which is risk-controlled and reasonably profitable.
In my early years, I had the experience of pursuing excessive profits, engaging in high leverage and high position trading, which led to a phase of severe losses. I have seen through the allure of high profits. After so many years, I still feel apprehensive about my past experiences. Having settled down for so long, I have come to realize that I am just an ordinary person. Ordinary people should not attempt what only deities can achieve; it is better to do what one is capable of.
I cannot become a trading master, as my psychological control ability is not high, and my technical skills are not at the master level. Being able to steadily earn the money I can make is already very fortunate, and there is no need to pursue high leverage and high profits.
Being able to do well in a "risk-controlled, reasonably profitable" model is already very satisfying.
Everyone can assess their own risk-bearing capacity, psychological endurance, and technical learning ability to choose the most suitable profit logic.
2. What kind of technical means will you use to achieve the purpose of making money? Trend following? Oscillation? Or reversal?
Having determined the profit logic is like finding one's goal, and the technical means are the vehicles to reach the destination.
You need to clarify the following three points regarding the technical means:
(1) What type of technical approach will you take? Trend following, oscillation, or top and bottom reversal of the market trend?(2) What indicators will you use for trading? For example, moving averages, MACD, KDJ, RSI, Fibonacci retracement levels, etc. Choose the ones you are most familiar with and use your favorite indicators to build a trading system.
(3) The choice of time frame. Is it a short-term trend or a long-term trend, 1-hour oscillation or 4-hour oscillation, daily top and bottom reversal or weekly chart top and bottom reversal?
My trading technical logic is to follow the trend in the 1-hour time frame, using the moving average indicator.
I will use an image to simply demonstrate the template of my technical logic.
The image shows the 1-hour candlestick chart of the Euro to US Dollar. After a continuous decline, the market begins to show a bullish trend. After the two moving averages form a golden cross, the market breaks above the downtrend line, confirming the trend reversal.
After the bullish reversal, wait for the candlestick to fall back to the support of the moving average, form a reversal candlestick pattern, and then enter the market. Set the stop loss at the low point of the pullback, and set a fixed profit and loss ratio for exit.
First, confirm the market reversal to bullish before entering the market, which is following the trend; each time the profit-taking uses a fixed profit and loss ratio, which belongs to swing trading.
This is the template of my trading technical logic, which can be used as a reference. However, when applying it to actual trading, it is essential to do a lot of backtesting to refine the details before using it.