In perpetual futures trading, controlling position size and capital allocation is an important part of risk management. Position management is often referred to as "money management" in the context of trading crypto assets. Position management is the management of positions in hand. A position is full when it reaches the maximum number of positions that can be supported by the account's capital. The ratio of the actual number of positions held to the number of full positions is the position-to-position ratio.
How to Manage Positions
Depending on the type of trader, position management will usually vary.
For example, for trend traders, the win rate may not be very high, but the profit/loss ratio is quite large. Therefore, trend traders need to control their positions strictly to reduce the cost of trial orders, and when the trial orders are successful and profitable, they need to keep adding positions to improve their profit/loss ratio to compensate for the low win rate.
But for short term traders, mainly rely on a high win rate with a low profit/loss ratio to achieve profits. Therefore, you need to consider maximizing your profitability by improving your capital utilization. Short-term traders usually use a more stringent stop-loss and stop-loss to reduce the risk associated with heavy positions.
However, it is important to note that position management does not solve the problem of low win rates. Position management only gives traders enough time and opportunity to take advantage of the market. Therefore, position management should be adjusted in conjunction with each individual's trading time cycle, psychological tolerance and other factors.
The Importance of Position Management
It is often said in contract trading that even though the leverage multiplier is high, how can you get more profit without taking a heavy position? However, it is important to note that risk and profit are coexistently linked. When traders use heavy positions to increase potential profits, they also bring with them significant potential risks. For the novice trader who is new to contract trading, there is neither a guaranteed way to win nor a limit on the amount of money invested, and controlling the risk rate is undoubtedly the fastest path to a blowout.
In reality, position management is not a means of chasing profits, but an important measure to control risk. Many successful and experienced traders also say that they will only trade heavily when they are fairly certain, but even when they are certain, they will prepare for a stop loss in advance.
Common Position Management Strategies
Rectangular Strategy
The rectangular management strategy requires that all positions be divided into equal parts, with each part being the same amount. This method is suitable for oscillating markets, where it is not possible to determine whether the market is in an upward or downward trend in the future. It is possible to share the risk gradually by adding positions in fixed amounts in a rectangular strategy.
Funnel strategy
The initial amount of capital to enter the market is small. When the market runs against the position, then gradually increases the position, thus spreading the cost, and at the same time, gradually increases the proportion of positions. This method of position management has a pattern of small below and large above, hence the name funnel-shaped management strategy.
The initial risk of a funnel-shaped strategy is low. The higher the funnel, the more profitable it is, provided that there is sufficient margin without a blowout. However, this method needs to be built on the consistency of the back market trend and judgment, which requires a high level of trader's ability to read and operate the market. When a misjudgment of direction occurs, or the trend can not cross the total cost price, it will be difficult to make profits.
Pyramid Strategy
In the pyramid strategy, the amount of capital entering the market is generally larger, and when the market is running in the opposite direction, then gradually decreases the position, and if the market trend is in line with expectations, then gradually increases the position. This strategy, also known as right-hand trading, is carried out when an uptrend has formed, following the trend to increase profits, and is suitable for use when the market is clear and better.
Disclaimer
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Crypto investment involves significant risks. Please proceed with caution. The course shall not be considered investment or financial advice.
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