Hello everyone, today I would like to share with you the mindset for opening positions.

Previously, I introduced the types of margin calls and how to avoid them. So, how can we avoid margin calls? We need to change our internal psychological qualities.

Some of you might say, after all this talk, it seems to have nothing to do with the market. Today, I will combine the market situation to discuss with you the psychological states that should be maintained at various stages of trading, such as opening positions, holding positions, and closing positions.

Let's start with the first topic of today, which is the mindset for opening positions. What kind of mindset should we maintain when opening positions?

I. Opening Positions

Firstly, are the conditions for opening positions strict and rigorous? What does it mean to be strict and rigorous?

For example, this is the daily EUR K-line chart from January 2016 to January 2017.

Sometimes we tend to open positions too hastily, such as opening a position because of an upper shadow line, or a lower shadow line, or because a sudden positive line appears during a sharp decline, and these methods of opening positions are often the beginning of losses.

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So, how can we determine if the trend has really reversed? How can we determine where is a very reasonable entry point?

For instance, if I want to go short on the euro, where should my entry point be? As you can see now, there are many points in the chart where one could enter, so how can we catch these profitable entry points?Let's simply draw a trend line.

Why does this line have to be outside a circle?

Because at that time, there was an extreme policy, determined by a single piece of news. Moreover, when we draw a trend line, we must exclude these key messages, these extreme market conditions, and not enclose them within the trend line, because they represent irrational reactions from the market, they are quite extreme. If you draw the line here, it might not take shape.

Now this trend line is basically established, with many touch points in the middle. So, what is our entry point for short positions? The entry point for short positions must be close to this line, trying to minimize one's stop-loss range.

What about our entry point for long positions? In a bearish trend, try not to take counter-trend positions; this is a major taboo in the trading market.

Whether you are in the stock, futures, or foreign exchange market, you must trade in the direction of the trend. We should follow the market and the trend. Trading against the trend is a major taboo in the trading market, and it is highly likely to result in significant losses.

Are there any traders in the world who trade against the trend? Yes, there are, but very few, too few. Anyway, we ordinary traders do not have this innate insight, that is, I know where the turning point is, I know where the turning point is when it's falling, I know where the key point is when it's rising. This almost requires a God's-eye view, and we are not discussing that here.

We should focus solely on the points near this trend line as the best entry points for short positions.

What does it mean to be strict? What does it mean to be rigorous? Does simply touching this line make it rigorous? No.

What is rigor? It means we should think in a diversified way.Have we approached the vicinity of this line, so can we consider shorting? Not necessarily. You must examine it to see if it meets your second, third, fourth, fifth, and sixth rules.

Of course, everyone's trading system is different. For instance, approaching the vicinity is the first condition; the second condition is that it must have a very good candlestick pattern, such as engulfing, counterattack lines, long-tailed upper shadows, evening stars, dark cloud covers, and so on, showing those strong price patterns, very strong reversal signals.

We can add points to our reasons for entering when we take a position. It's close to the trend line, I add one point; it has many candlestick patterns, I add another point.

For example, the European Central Bank's monetary policy is exactly trending towards a bearish trend, so I add another point on the fundamental side. If you can read indicators, and the MACD shows a death cross or a top divergence, I add another point.

Then you can create your own trading system, deciding when to enter a position based on a certain number of points.

We know that when multiple conditions occur simultaneously, the success rate is very high. But what if there's only one condition saying I'm close to the trend line, and at that time, the policy is leaning towards the bullish side, and it breaks through, what then? Go long in the opposite direction? If the news is still fermenting and hasn't finished, and after breaking through, it pulls back with an upper shadow, isn't that a double kill for both long and short positions? Both of your trades would be stopped out, right?

So you say, just move the stop loss further away, and it's done?

Students must remember that a stop loss is not something you can just move further away to stubbornly hold on. Once a stop loss is set, never touch it. Don't say, "Oh, it always just stops me out, and then the position comes back, it's so annoying, I just need to slightly move the stop loss."

Don't move it. I will discuss the setting of stop losses in later lessons, including the significance of setting a stop loss, where to set it, and how to handle it if it gets triggered. That's what I will cover in the later lessons. For now, let's focus on opening positions.

For example, I place my stop loss just a little above the previous high, above the trend line. Let's say my stop loss is only thirty-five points, for instance, then as long as I manage the risk-reward ratio properly, right?For instance, let's say I need to make a profit of one hundred points on this order, and the risk-reward ratio is nearly one to three. What does one to three mean? It means that out of ten orders, as long as you succeed with three of them, you won't be at a loss. Right?

Of course, the higher the risk-reward ratio of an order, the lower its success rate will be. Accordingly, you also need to set a break-even stop loss and control your own capital risk, which I will discuss in the subsequent lessons.

So where should we set our stop loss? It should be just a little bit above or below a key position, but it must be measured. That is to say, we should not set it arbitrarily, like placing a 200-point stop loss. I see the previous high at 350 and subtract ten, my teacher told me, I'll add a bit more, and I place it at 380 points. This is not acceptable.

You need to consider how much profit you want to make. If you only want a profit of two hundred points, placing a stop loss at 380 points is entirely meaningless. In other words, out of ten orders, you would need to make a profit on at least seven of them to break even, right? So our risk-reward ratio must be well managed; the larger the ratio, the lower the success rate.

However, if the risk-reward ratio is relatively reasonable, although your success rate is not very high, you can always maintain a positive and stable profit state. That's why we must adhere to very strict conditions when opening a position.

We don't just have one condition as the condition for opening a position; we can have four or five conditions at the same time, such as policy-related, technical, and indicator-based ones. We can also look at smaller time frames to see which line fits our trading system.

So the first part I'm telling you about is our position-opening conditions. The conditions for opening a position must be very strict. We need to think about this with a multifaceted approach to make our position-opening conditions more in line with our standards.

Instead of saying, "Oh teacher, I've already used six criteria, but it's too difficult to meet all six at the same time, and it's hard to meet four, and I've met two, so I'll open this position."

Students, you need to consider one thing: is the feeling of loss better or the feeling of waiting better? If you think waiting is more unbearable and painful, then go ahead and open your position. But the loss you can only bear yourself, right? The more stringent your position-opening conditions are, and the more composite conditions you have, the higher your success rate will be.

Of course, we don't pursue success rate in trading entirely, saying "Teacher, I must pursue a success rate, my rate must be above 80%, I can't tolerate such a low success rate, I must make money after opening a position." This is unrealistic, students remember, this is unrealistic.We are engaged in trading, and all transactions made in the secondary market are based on probability. We are in pursuit of a certain probability; the success rate of your trades will not exceed fifty percent. Many students may have a different view on this, arguing that if so, what's the point of learning to trade? Why not just flip a coin?

But can flipping a coin achieve such long-term profits? It requires your trading system to work in conjunction. The success rate of your trades is essentially not going to exceed fifty percent. Generally, the successful trading masters I know, those who consistently make profits in this market over the years, may have a trade success rate of less than fifty percent.

Many people would ask, then how do these masters make money?

There is only one reason: they manage their risk-reward ratio very well. They take small losses and make large profits. Perhaps out of ten trades, five may result in losses, but the combined losses of those five trades might not even equal the profit points of one winning trade. The combined losses might be just over three hundred points, while one single trade could make a profit of five hundred points. That's how they make money; they manage their risk-reward ratio very well.

Those who are good at trading, who have been in the game for a long time, as long as they can achieve stable profits and break out of that "circle," what is the "circle"? It's what I mentioned in the previous section about the three types of account blowouts. The third type of blowout, once you've passed the psychological test, you will have a very stable quantitative trading system. At that point, you need to execute and exercise self-discipline; this is the secret to stable profits in the trading market.

These are the conditions for opening a position, which should be strict and diverse. In the next session, we will discuss with everyone another key factor in opening a position—patience.

That's all for today's content. Welcome everyone to follow, like, and share!