Several moments of enlightenment in trading
I have been involved in trading for over a decade, encountering numerous losses, confusions, and problems for which no one could provide answers, and I didn't know where to look for solutions.
Fortunately, you will come across many people, numerous books, and a variety of experiences. There will always be opportunities that suddenly break your existing perceptions, resolve the doubts in your heart, and find a clear direction.
I refer to these moments as "epiphanies," which for me are also the "elixir" on the trading journey, because they have solved my once overwhelming problems and helped me find the path to true profitability.
So today, I will share these moments of epiphany and their content with you, hoping that you too can have your own epiphanies in future trading and achieve profitability.
Epiphany Moment One:
There was a time when I was in an "awkward phase" of trading. I already knew about the existence of trading systems and that they could lead me to profitability, but I was caught in a strange loop.
I believed that there must be a magical trading system in the world that could simultaneously achieve a high profit-to-loss ratio, high win rate, and stable profits.
So, I spent a lot of time frantically searching for and learning other people's trading systems, and also spent a lot of money attending various training courses. I hoped to replicate others' successful experiences to quickly enter profitability.
However, after each trial, I found that there was no good trading system, because each had its issues—either the profits were unstable, or the drawdowns were too severe, or the trading frequency was too low, and the waiting time was too long. After going around in circles, I lost a lot of money, and still hadn't found the method.
At that time, I began to doubt myself, thinking that my luck was just too bad, and whether it was predestined that I could never achieve profitability.Later, I came across a book called "The Red Dust of the Sky" during a serendipitous moment, which introduced a concept called "not following the beaten path."
The book discusses that behind every successful experience, there are unique natural conditions, such as the growth experiences of the successful individual, their level of education, their ideological awareness, social background, luck, and so on. Success is not merely about adopting someone else's methods; it involves the right timing, place, and people.
Initially, I couldn't fully comprehend this, questioning whether my lack of success was due to not having the background and fortune of those who have succeeded.
It was only after reading further into the book that I understood the true meaning of "not following the beaten path." It doesn't mean you should avoid the paths others have taken; instead, it means you should forge your "own path."
It's not that you can't adopt someone else's trading system; it's just that it may not align with who you are. You need to find a trading system that resonates with you personally.
However, you won't find it just by searching, as everyone has different trading habits, and only one that you create yourself will be the most suitable.
You can create your own trading system by drawing on the experiences of others, improving and optimizing them, and integrating your personality traits and trading habits.
The trading system I currently use is a result of synthesizing all the trading systems I've ever seen. I selected strategies that I found useful and effective, and after long-term review and simulation testing, I gradually refined and modified them into my own trading system, which I have been using ever since.
It's similar to how many successful companies have a crowd of imitators, yet only a few achieve the same level of success, for the same reason.
Some people aspire to be like Jesse Livermore, some to be like George Soros, and others to be like Warren Buffett, but throughout the century-long history of finance, there remain only a handful of such individuals.In this world, from a nation to a company, or an individual, there is no path to success that can be copied 100%; it can only be learned from, adapted, and put into practice for one's own use. It is this process that constitutes the ultimate solution.
Epiphany Moment Two
In my more than ten years of trading experience, there are two orders that are unforgettable throughout my life, both related to stop-losses.
One was the experience of a heavy long position in the euro against the US dollar without a stop-loss, which resulted in a severe loss. I have mentioned this in my articles before, and it made me start to understand the importance of stop-losses.
However, I was not quite convinced, thinking that perhaps it was only because of the heavy position without a stop-loss that led to the blowout. If it was a light position, there wouldn't be this problem. Because with a light position, if you are right, you take the money and leave; if you are wrong, you let the order float, and it will always float back. If it doesn't float back, you can add to the light position and wait for a pullback, and it will also come back.
Once a position is stuck, and the account cannot make a profit, use another instrument to supplement the trading.
After establishing the pattern, I had the trading experience of shorting 0.05 lots of the New Zealand dollar in 2014 under this mindset.
At that time, the principal was 10,000 US dollars. In foreign exchange, a position of 0.05 lots with 10,000 US dollars is quite small.
Let's look at the image below, which is the weekly chart of the New Zealand dollar against the US dollar, illustrating the trade at that time.
Let me tell you about the trading experience. In February 2014, the price was at the position of 0.80600, and I shorted 0.05 lots of the New Zealand dollar against the US dollar. The reason for entering the market at that time was because there was a downward breakout, but after the breakout, the market immediately reversed upward. In fact, the breakout was a fake move to lure shorts.After the order was trapped, since the position was small, I didn't panic and wanted to wait for the market to drift back. However, the market reversed directly upward from the 0.80600 level, and after two consecutive weeks of bullish candles, the third week ended with a bearish candle. I added another 0.05 lots of short positions at a price of 0.82800.
After the second short, the market continued to rise, and when it tested the previous high of 0.86800, the floating loss on my account had reached 50%. I was considering adding more positions, but the floating loss was too large, and I was too scared to do so, so I just held on to the losing positions.
Over three to four months, my spirit was completely drained by these two losing orders, leaving me mentally exhausted and my confidence completely eroded. There were many times when I wanted to close the positions just to be free from the torment. At that time, my true thought was, "Money doesn't matter anymore, I just don't want to suffer anymore."
I was worried about the risk of a margin call if I persisted, and at the same time, I was torn about what to do if I closed the positions now and the market turned around. Until later, after the market stood above 0.86900, New Zealand released some important economic data, and the market gapped up quickly. At that moment, my spirit was utterly crushed, and I closed the losing positions, feeling liberated.
But the irony was that the quick gap-up was just another false breakout. After I closed my positions, the market went through some consolidation and then dropped significantly. I fell once again just before the dawn.
From this experience, I truly had an epiphany.Whether one is heavily or lightly invested, if they do not set a stop loss, they will ultimately suffer significant losses; it's just that the manner of failure differs. To continue trading and to profit, one must first implement a stop loss strategy.
Additionally, I have come to realize that even if a plan is technically feasible, it is insufficient if one cannot maintain the psychological fortitude to see it through.
This wave of operations could indeed be sustained without a margin call, and the market did reverse. However, before the reversal, my mentality had already collapsed. Once my mindset crumbled, everything was lost.
Lu Xun once said, "Teaching by people may not be effective; teaching by experience, once is enough."
In every subsequent trade, as long as I did not set a stop loss, the memory of my past margin call would constantly haunt me, effectively breaking me of that bad habit.
Epiphany Moment Three:
I once read an excellent book called "The Clear and Bright Realm," which I believe many friends have also read. I have read it multiple times, and there is a passage that made me ponder for a long time, radically changing my understanding of trading.
The author mentioned that his trading was influenced by Kant's philosophical idea of "humans legislating for nature."
What is "humans legislating for nature"? Kant's understanding of the laws of the world is that the universal and necessary connections between things are not inherent in nature itself, but are attributes of human cognitive forms.
In simpler terms, the rules of this world are not originally present in nature, but are cognitions that we humans bestow.For instance, we have 24 hours in a day and 7 days in a week, yet in ancient times, there were only 12 time periods known as 'shichen'. How do humans define time, and what exactly is time?
Nature is inherently chaotic, and by imposing order upon it, we create patterns that allow us to navigate and live within it.
In the early years of trading, I observed a multitude of perspectives in various trading forums. Faced with the same financial instrument and time frame, different technical theories led to vastly different opinions among traders. Some were bullish, while others were bearish, each with compelling arguments and seemingly logical reasoning.
It was not until I encountered the concept of "humans legislating for nature" in a book that I realized we are all confronted with the same disorderly fluctuating market, and we can never discover the definitive patterns behind market movements.
Precisely because of this, we need to create a set of rules for ourselves to observe and understand market trends, providing a basis for our actions through these rules.
This set of rules is our trading system. The first element of a trading system is to identify the trend. Once we have a system in place, our perspective becomes clear. We no longer see a chaotic market but an orderly set of fluctuations. We trade when the market aligns with our rules and refrain from acting when it does not, seizing opportunities that belong to us.
Before, when the market fell, I would search for various reasons to analyze why it fell, where the bottom might be, whether to short sell or wait for a bottom to go long.
With a set of rules, the reasons for the market's decline become utterly irrelevant, and I no longer analyze where the bottom might be. As long as the downward trend forms a pattern that meets my entry criteria, I take action.
At this point, trading no longer feels like aimlessly chasing the market; instead, it becomes a targeted waiting for opportunities to arise, with the rhythm of trading entirely in my control.
Rules are my perspective for observing the market, and I've found that when thoughts are simple, desires are low, and requirements are minimal, the rules are straightforward, and the market appears simple. On the contrary, when thoughts are complex, desires are high, and requirements are stringent, the market appears complex.These are some of the more significant moments of enlightenment in my trading career. There are also a few frequently asked questions that I will take this opportunity to discuss with everyone.
Common Questions:
1: Enlightenment does not always come from losses.
There is a saying, "There is no path in life that is walked in vain, every step counts." Some people always say that the process of making a profit in trading is all about losing money, and that methods are honed through losses, as if losing enough will naturally lead to profits. However, this is not entirely accurate.
Our funds are limited and cannot allow for unlimited trial and error. I have encountered many people who have been losing for years and still cannot achieve profitability.
Losses and failures can indeed cause one to reflect deeply on the pain, but without contemplation and review, the pain experienced is merely pain.
So, the enlightenment we speak of mostly comes from having failed, having summarized, having thought deeply, and then with the help of some external forces, we truly understand some truths. This is the meaningful pain.
2: Some people have minor insights every three days and major insights every five days.
Often, friends share with me their moments of enlightenment in trading. Today they realize they were too greedy, tomorrow they realize they were too impatient, and they realize they have a serious mentality of taking chances. There are too many such moments of enlightenment.
However, most people only know the general direction of a mistake but do not delve into the details, because they have never thought about truly making a change. Even if they have an insight, it is meaningless.For instance, everyone knows that greed is not advisable, but in reality, there are many manifestations of greed in trading, such as not taking profits at the target level, watching too many varieties and wanting to do more to earn more, looking at too many levels, and trying to hold short-term trades for long-term trends, etc. By examining every detail and correcting and changing bit by bit, your "epiphany" becomes meaningful.
I know many people are wandering through a process of continuous mistakes, realizations, and losses.
This short-term, simplistic understanding of one's own mistakes should not be called an epiphany. True epiphany must be when you thoroughly understand, make up your mind to change, commit to doing it, and achieve it; only then have you truly experienced an epiphany.