Position management is also commonly referred to as “fund management”. Although this nomenclature is not strict, it can often be used in trading circles. So what is position management? As the name suggests, it's about managing positions in your hands.

The maximum number of positions that can be supported by your account's capital is your full position status. The ratio between the number of positions you actually hold and the number of full positions is the so-called ratio of positions. The definition of this in Baidu Encyclopedia is: in a risk market, risk is controlled by limiting the proportion of capital invested at a time.

Through the above statement, everyone should have a more accurate understanding of “position management”. Let's start withNecessity of position management, how to manage positions, mentality issues in position managementLet's explain from three aspects how to solve the “small profit big loss” problem from this level.

I. The importance and necessity of position management

The prerequisite for studying position management is that trading methods are consistent and that one or several combinations are used regularly to participate in the market. Otherwise, position management will lose its meaning. This point needs to be mentioned earlier.

The reason for this is very simple. Just like you are playing poker, the criteria for every fold and raise should be the same. Otherwise, who can say for sure if you only place a small bet when you win and place a heavy bet when you lose.

No one can accurately predict what kind of state the market will be in at some point in the future, and what kind of price it will perform. Even if someone does it in a short period of time, it must be foolish. Fight in the market and don't trust anyone who claims to be able to predict the market. As a result, market uncertainty is clearly in front of us. Since the market is never predictable, is there any reason for you to use all of your capital for position holding?

At this point, you might say, how can you make enough profit without heavy holdings? One thing you need to be aware of is that risk and profit coexist. You have increased the possibility of chasing profit, while at the same time unraveling the ropes that bind risk. Especially in the novice stage, when there is no way to guarantee a win rate, uncontrolled investment is undoubtedly one of the fastest ways to liquidate a position.

Position management is a risk prevention measure, not a means for you to chase profit. This is just like the quote from Baidu Encyclopedia at the beginning of the article. Many successful seniors also often tell us,You can only re-position when there is a high degree of certainty. Even so, it is based on preparing for stop-loss in advance. After all, survival is an important support for profit in the market.

It can be seen from this that position management is essential in market games. It's never wrong to try to invest in smaller positions before you have been unable to interpret market signals well and establish a complete trading system. Although it can't get you out of “small profits” for the time being, position management with stop-loss can at least help you stop “big losses.” This is a kind of iconic victory throughout the trading process: your capital is finally no longer flowing out of large amounts.

2. How to manage positions?

If these mentioned earlier are so-called “worldviews,” then let's discuss the “methodology” of position management in this section.

First of all, there is one point that everyone needs to understand: position control does not solve the problem of low win rates; it only makes traders slow to die so that they have enough time and opportunity to get their own wave of market conditions. It can be seen from this that position management cannot be discussed separately; rather, it should be combined with each person's trading time period, psychological tolerance, and basis for entry and exit.

For example, trend traders usually don't have a high win rate, but the profit to loss ratio is quite large. This requires strict control of positions during trend trading to reduce test order costs. Once a test order is successfully profitable, it is necessary to continuously increase positions to increase one's profit/loss ratio to make up for the disadvantages of a low win rate.

Short-term traders, on the other hand, rely on a high win rate combined with a low profit/loss ratio to achieve profit, so they need to increase their capital utilization rate to ensure maximum profit. Of course, short-term traders are very strict about stop-loss, which reduces the risk of heavy positions on another level.

The purpose of position management is to cut off losses and let profits run. To achieve this goal, we need to follow some principles:

1. Never invest all of your capital in the market.

Especially in the novice stage or in a state of “small profit and big loss” for a long time, investing all capital into the market will not only increase losses, but also affect the mentality of traders to a certain extent. Of course, short-term traders can try to hit a heavy position when the stop loss is firm and the profit/loss ratio is reasonable, but it is important to ensure that the same standard of entry is to open the same position. Otherwise, it is very likely that there will be an embarrassing situation where the position is light when profit is profitable and heavy when losing.

2. It is normal for incidental continuous losses to occur in trading. Position management must ensure that after continuous losses, the remaining capital can also open positions of the same volume.

If this principle cannot be followed, then it is very likely that you can open a 100 hand order, but after several consecutive losses, you can only open a 90 hand order. If you want to return the amount of money to the original level of 90 lots, it will be more difficult than if you want to return the capital to the original level of 100 lots.

3. There must be a scientific strategy for adding and reducing positions.

Although trading is a game of probability from a mathematical point of view, it is by no means a static model. The ever-changing market is likely to show market trends that make us increase or decrease our positions once we enter the market. At this time, your win rate and profit/loss ratio are also changing. This requires your position management, including the addition and reduction of positions, in it.

So are there any general rules for specific position management that are accurate to numbers? For example, a position must be opened according to what percentage, and under what circumstances should positions be increased or reduced by what percentage? Too bad, no! As already mentioned at the beginning of this part, position management should be designed based on individual entry and exit grounds and psychological tolerance. Here, we can only provide you with an idea. Everyone needs to complete their position management strategy based on their own relevant data.

So what data or reference items do you need to base your own position management strategy on? I've made the following statistics here for your reference:

1. Your own risk appetite.

You need to determine whether you are aggressive or conservative. How much losses you can accept each time, and how many of these losses correspond to the stop loss points in your trading system. The acceptable loss amount compared to the stop loss points is the amount of loss you can bear by one point. These amounts are the number of losses you can afford by one point. These amounts are the number of lots you can afford to enter and open a position in one go.

2. The winning rate of the trading method.

Your position management must be determined by combining the winning rate provided by the trading method to ensure that your capital can survive the loss portion under a normal ratio of profit and loss.

3. The risk-reward ratio of the transaction, also known as the profit/loss ratio.

The winning ratio and profit/loss ratio are a pair of twins. I've mentioned this in many previous articles. With the combination of win rate and profit/loss ratio, your position management must be able to withstand the “worst period” in trading; otherwise, you will die sadly in the night before dawn before dawn before dawn before you reach the dawn of your trading system.

In short, position management is not an independent and static part; it is an integral part of the entire trading system. Above, we have only discussed position management and the various factors associated with it, but this is not to say that the trading system is just that. The entry and exit strategy and position management in the trading system complement each other; both are indispensable.

III. Mentality issues in position management

The first two sections separately told you about the “worldview” and “methodology” of position management. Next, there are issues at the level of consciousness. You will definitely not be able to cope well in terms of mentality until the problems in the above two parts are solved. If your position management has already been inspired by the above sections, or if previous problems have been solved, then the mentality problem is relatively easy.

There are only two types of mentality that often appear in position management: when making money, it would be great if I could work at full capacity in the first place; when I lose money, it would be nice if I could test my position lightly in the first place. Of course, there will also be questions such as whether to increase positions? Let's add a gamble! Or do you want to reduce your position? Forget it, I'm still in a state of mind where I can quickly reduce my position and run away, but the latter is a derivative of the former.

When carrying out position management, the best state is to execute it in full accordance with the designed management model, without any subjective factors.It's easy to say this, but it's not that easy to do, so what should you do?

There are no shortcuts, justMake the position management strategy and the other parts of the trading system that match it as detailed as possible without giving yourself any room for subjective imagination.

Note, this is not for you to complicate the trading system, but to tell everyone to make the simplest trading system as fixed and careful as possible. For example, if the basis for a certain operation is intermittent, then turn this range into a definite value, or reduce the range as much as possible to find certainty in the system. Only in this way can you use rules to firmly lock in your heart.

However, the rules still depend on discipline to complete execution, so you must abide by the discipline that has already been established, even if you use your own reward and punishment mechanism.

Speaking of position management, this is also coming to an end. I hope you can gain some ideas about position management from it, which will definitely be beneficial to everyone in their trading journey. Finally, I hope everyone's trading goes well and the ups and downs go all the way.