During the trading process, all investors are inevitably faced with what is known as a trading slump. A trading slump refers to a period in the trading process where it is difficult to see profits or there is a possibility of increasing losses. Sometimes it may be due to changes in the market, and sometimes it may be due to changes in the investor's strategy or no longer adhering to a certain trading plan. However, regardless of the reason, investors can ask five questions to analyze this issue in order to make changes and turn losses into profits.
1. Is it possible to generate profits by operating the current investment products with my ideas?
The market is constantly changing, fluctuating from low to high points. A method that is suitable under certain conditions may not be applicable under other conditions. A plan may be executed perfectly, but if it is in the wrong market environment, it may end up in vain. Therefore, investors must consider whether their market entry and exit points, profit targets, and capital management strategies are feasible under the current market conditions. If not feasible, they should wait for a more appropriate time to act or change their strategies in a timely manner.
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2. Are you trading against the trend or with the trend?
Many investors will use the development trend of the market to formulate strategies. However, there are many trends that appear at different times, and investors should pay attention to which trends are currently relevant. Therefore, noticing various development trends and deciding which ones to refer to for trading is the key to the success or failure of trading.
If a strategy formulated based on a certain trend does not generate profits, investors must consider whether the trend still exists. If a certain trend has already appeared, then entering the market (close to the adjustment point) or exiting may be too late. If a strategy should generate profits (but actually does not), should you continue to adhere to that strategy? This situation may not be a problem with the strategy itself, but a problem with the investor himself. (This situation often occurs)
3. Are there specific rules for entering and exiting the market, and have they been followed?If a trading slump occurs, it may be because investors have not formulated a detailed plan on how to enter and exit the market. Have the rules to be followed been listed in detail in writing? This should include the rules on how and when to start and stop trading.
Investors should also ask themselves whether they have made minor adjustments to the execution of their trading plan. For example, it is necessary to enter the market in time when a signal is seen, rather than waiting for a certain price range to end, and vice versa. Such adjustments can change the dynamic development of a strategy.
In addition, have the entry and exit rules been verified in some aspects? Or are these rules based on unfounded assumptions? You can test the feasibility of your trading strategy through backtesting, paper trading, or simulated accounts.
4. Are all signals referred to for trading, or just some specific signals?
When formulating a trading strategy, especially backtesting, there is an assumption that all signals provided by the strategy are referred to. If certain specific trades are filtered out, they should be avoided in the actual operation. Therefore, investors must ask themselves, "Do I follow my plan, or do I trade too frequently or too infrequently?"
If additional trades need to be made outside the trading plan, it is not a problem with the trading plan. Investors should stop these additional trades until they can be incorporated into a profitable strategy.
If all signals are not referred to during trading, it may greatly affect the overall profitability of the strategy. Investors should confirm whether the missed trading signals can make you profitable. If so, they should refer to these signals to make trades.
5. Have you established and followed the rules of capital management?
One of the most important aspects of trading is the management of capital. Each trade should minimize the risk to the investor, ideally with losses not exceeding 5% of the investor's capital. Therefore, if the capital management rules are correct, have you followed them? Is it possible that the capital management rules are correct, but the losses generated in the actual trading process will exceed expectations?Market downturns, or a variety of fees, can lead to losses exceeding expectations. If losses continue to be slightly (or significantly) higher than anticipated, it is necessary to reduce positions, switch to a broker with lower fees, or cease trading when the market experiences a substantial decline. Risk control is generally difficult to execute properly.
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