At the beginning of the Year of the Dragon, I would like to talk about a very important topic, about the revision of the trading system.
The market changes too fast, and there are always a lot of things that happen that have never happened before.
The trading system of many retail investors collapsed, and at the beginning of 2024, there were huge losses.
Indeed, a lot of things happen for the first time.
For example, the plunge in micro-cap stocks, which has fallen by more than 45% in just over a decade, is unprecedented.
For example, the CSI 300 has seen four consecutive yin on the current annual line, the first time in history, and the longest before was only two years.
For example, the new energy and photovoltaic indexes have closed in the negative line for 7 consecutive quarters, which is also the first time in history.
Too many things that once wouldn't have happened have just happened, which is a great test for a trading system.
Even quantitative private placement has not escaped the catastrophe, and some quantitative private placements have turned profits into losses in just a few days, and it is a huge loss, facing the embarrassing situation of liquidation.
This fully shows that many trading models have begun to be inapplicable in the current market.
Some retail investors may still be addicted to the joy of being a demon stock, chasing a leader, and eating big meat in the second half of 2023.
In January 2024, it really gave a slap in the face.
The market will always inadvertently harvest the once big winners.
Therefore, for many retail investors, correcting the trading system has become a very important thing.
Moreover, this matter is a bit imminent.
Because it is obvious that the style of the market has shifted from the ultra-short-term game to the medium-long historical layout.
No matter how the market changes, the essence will not change, which is to buy cheap stocks and sell them at a high price.
But technically, as well as in the execution of trades, there are still a lot of corrections that need to be made.
When the market style changes, how retail investors should respond has become a matter that should be solved at the moment.
Here are a few key points to share with you.
First, whether the stop-loss mechanism is perfect.
If there is a problem with your trading system and you have incurred a large loss over a period of time.
The first thing to do is to check if your stop-loss mechanism is wrong.
Because if a good stop-loss pattern exists, it is unlikely that there will be a large loss in the short term.
When there are some things that should be sold, you must sell decisively, otherwise the whole system of stop loss will be invalid.
Although it is true that many times you will be deceived, there is no way to do it.
You can't think that just because it has fallen too much, it is to lure short, not that the funds are being shipped.
It is actually very dangerous to deal with the decline of the market with a fluke mentality, and you need to be rational.
The stop-loss mechanism does not simply refer to the stop-loss ratio.
More often, it is according to the frequency of stop loss, to adjust the stop loss strategy to avoid short-term high-frequency stop loss.
Once a large number of stop-loss behaviors occur in the short term, then the trading system is undoubtedly very unsuccessful.
Second, whether there is a change in stock selection thinking.
The failure of the trading system is not only due to the problem of the stop-loss mechanism.
More often than not, the idea of stock selection is no longer out of step with the times.
For example, the previous market style, which was clearly biased towards micro-cap stocks, has now shifted to the direction of big blue chips.
This big style change is actually a change in the overall market capital being guided.
Therefore, in terms of stock selection ideas, it is actually necessary to make a lot of adjustments, otherwise, it will go further and further down the wrong path.
The idea of stock selection is nothing more than technical stock selection and fundamental stock selection.
When the trading system collapses, it is important to improve fundamental stock picking, not technical stock picking.
Many people have stepped into the misconception that technical failure is a problem with the technical form.
But the reality is that when the fundamentals change, all the technical aspects can fail.
On the road to a big fall, only trend trading without buying stocks is a truly effective stock selection idea, and everything else is nonsense.
At this stage, the idea of fundamental stock selection needs to be changed, especially the focus of fundamentals is more critical.
Third, whether the buying point needs to be changed.
Whether there is a change in the so-called buying point is actually mainly for the bullish faction, whether it is necessary to calm down.
When a trading strategy fails and there is a large loss, the biggest problem must be the buying point.
There is no need to shift the blame to stock selection.
Many times, it is the wrong time to buy and sell, not the stock itself.
No matter how bad the stock is, there will be a time to rise, and at a certain stage, it will bring a huge rebound because of the collapse.
In fact, there is no absolute difference between good and bad stocks, only the difference between cheap and expensive.
When you catch a very good buy point, you will understand the secret of trading.
Some retail investors who specialize in catching the over-falling rebound and chasing the fall and killing the rise will often make a lot of money if they can do it well.
Moreover, buying down rather than buying up, being able to effectively receive cheap chips is also the core of the transaction.
Fourth, whether the position allocation mechanism should be optimized.
Position management may seem like a cliché, but it is actually extremely valuable.
Some investors like to have a full position in stud dry stocks, but in fact, the risk is very large.
The position allocation mechanism is mainly used to counter risks and avoid major surprises.
Generally speaking, when you have a relatively large loss and the trading system collapses, you have to find a way to adjust the position.
The position allocation mechanism must be optimized.
When the return of diversification is less than expected, it is necessary to know how to close the position and choose stocks.
When there is a large loss in concentrated investment, it is necessary to appropriately diversify the position and reduce the risk.
An excellent trading system also needs to control the overall amplitude of the position.
For example, the valuation method is used to determine the current position of the market, so as to facilitate the allocation and management of positions and ensure the safety factor.
Fifth, whether the take-profit pattern needs to be adjusted.
The last point is the adjustment of the take-profit mode.
This is actually very important and directly determines the profit.
In the bull market, it is about holding on to the death, but the bear market has become a stock game, and you must pick a good price to sell.
In a bear market, taking the elevator has become the norm the most, because the market is not very controllable, and funds may retreat at any time.
If you still follow the trading expectations of the bull market, it is easy to be trapped on the mountainside of the bear market, and it is often bought and then rises first, and then falls.
Take profit itself is to earn money in your own cognition, and how to balance the money lost due to lack of cognition has become the key.
The trading system itself requires a stable, unstable take-profit model, which must be adjusted.
The establishment of the trading system is actually only an initial part, and once it enters the game, it is normal for the whole system to face tinkering.
It is also very normal that there are some trading systems that may be completely eliminated by the market.
The market is brutal, and we must be fully prepared to tear it down and start over.
In this market, you can only conform to it, there is no situation that makes it succumb to you, and following the trend is the way out.