Recently, many friends have come to ask me whether they want to cut meat and lower the cost of the stocks he held before. In fact, in the face of systemic risks in the stock market, basically no one is immune. As investors, the only thing we can do is to control our own funds and positions, and in the face of the weakening of our individual stocks driven by the decline of the market, use the systematic approach of "position management" to help us control floating losses and stop floating profits, so as to ensure a stable rate of return for the whole year!

So what I want to share with you today is a more important section of the "trading system", that is, position management.

The so-called position management is actually the management of the ratio between stocks and funds. For example, we are talking about light positions, that is, the share of funds invested in stocks that have been bought accounts for a small proportion of the total amount to be invested. To put it bluntly, there are more remaining funds and a larger proportion of cash held. On the contrary, it is a heavy position, that is, there are less remaining funds and a larger proportion of stock funds. To control the position is to control the risk, and the most important thing is to control our position if we want to survive in the falling market.

01 the three most common situations in our stock account

There are three common situations in our stock account:

1 keep filling positions, falling more and more, as a result, hit all the bullets ahead of time, and finally was tied up halfway up the hillside

2 catch up and kill the fall, cut the meat as soon as it falls, and catch up as soon as it goes up. As a result, the profit is not as good as the loss.

3 motionless, watching the net worth continue to fall, regardless of it, as a result, when the net value rises back, after walking out of the U-shaped chart, there is still no money.

After the recent continuous circuit breakers of US stocks and the collapse of A-shares, many early star stocks, such as technology and 5G, are often stampeded because of panic, and many investors flee.

And from the perspective of value investment and fundamental research: the short-term market is unpredictable, even for investment masters, because there are not only systemic risks but also non-systemic risks in investment risks. so only if we do a good job in position management, can we survive under the premise that the risk can be controlled.

02 how to do a good job in position management and improve the probability of winning the investment?

There are two main directions for position management, one is operational, the other is mentality:

One of the purposes of position management is to maintain a good state of mind.

Just imagine your full position 1 million yuan, floating loss 50% psychology and light position 10, 000 yuan, floating loss 50% psychology will be different? If you don't say whether you can analyze calmly or not, your mentality may collapse, not to mention whether you can make a correct judgment, this is the imbalance of investment psychology.

If you are only in a light position and still have bullets in your hand, you will be able to adapt safely regardless of whether it is up or down in the future, so that you can face the investment calmly. Therefore, it is not recommended to add leveraged investment and investment with the funds of life, which is too big a test of mentality, ordinary people can not afford to play, can not afford to lose.

The basic logic of position management is: low position at high valuation and high position at low valuation.

This coincides with the "valuation investment method" advocated by fundamental researchers. Although you may not be able to buy at the lowest point and sell at the highest point, it is not a problem to sell low and sell high.

The reason why we need to set aside funds and never fill our positions is because our cash flow is limited and we need to take into account that we have enough money to buy when there may be good opportunities in the future, rather than staring at it. Second, the volatility of the full position is too big, the decline is too exciting, the heart can not stand it, because every time the position is doubled, the risk is doubled.

Or take the principal of 1 million as an example, it fell 10% and became 900000, while 900000 rose 10% and only 990000. If you want to get back to the capital, you need to increase 11.11%.

When you lose 20%, you need to increase by 25% in order to get your capital back.

When you lose 30%, you need to increase by 42.86% in order to get your capital back.

When you lose 40%, you need to increase by 66.67% in order to get your capital back.

When you lose 50%, you need to increase by 100% in order to get your capital back.

When you lose 80%, you need to increase by 400% in order to get your capital back.

When you lose 90%, you need to increase by 900% before you can get your money back.

We can see that when the range of floating losses becomes larger and larger, it will become more and more difficult to recover the cost. When it exceeds 50%, if the position is not covered, it is almost impossible to recover the cost.

Therefore, only when sufficient funds are reserved, when there is a floating loss in the invested fund, the position is covered in time and the floating loss is controlled within 40%, then there is hope for the possibility of capital return, otherwise there will be despair.

And the method of replenishing positions here I recommend the "pyramid position management method".

03 three commonly used position management methods

There are three commonly used methods of position management: funnel position management (also known as inverted pyramid), rectangular position management, pyramid position management.

Among these three methods, the pyramid position management method has more advantages than the other two methods, and it is a more scientific position management method than the first two methods.

Let's first understand the basic usage and applicable environment of these three position management methods, as well as their advantages and disadvantages:

1 funnel position management method

The initial entry capital is relatively small, the position is relatively light, if the market runs in the opposite direction, the position will be gradually increased in the future, and then the cost will be diluted, and the proportion of the position will become larger and larger. In this method, the position control is small at the bottom and large at the top, which is very much like a funnel, so it can be called a funnel-shaped position management method.

Advantages: the initial risk is relatively small, in the case of no explosion, the higher the funnel, the more substantial the profit.

Disadvantages: this method is based on the premise that the future trend and judgment are consistent, if the direction judgment is wrong, or the direction trend can not exceed the total cost, it will not be able to make a profit out of the situation.

In general, the position will be heavier, the available funds will be less, and the cash flow will be in trouble. In this way of position management, the more reverse fluctuation, the greater the position and the higher the risk will be. When the range of reverse fluctuation reaches a certain degree, it will inevitably lead to full position holding, and at this time, as long as it fluctuates by a small margin in the opposite direction, it will lead to an explosion.

2 rectangular position management method

The amount of capital in the initial entry accounts for a fixed proportion of the total funds. If the market develops in the opposite direction, it will gradually increase the position, reduce the cost, and increase the position in accordance with this fixed proportion. The shape is like a rectangle, which can be called the rectangular position management method.

Advantages: only a certain proportion of positions are increased each time, the cost of holding positions is gradually raised, and the risks are shared equally and managed averagely. In the case that the position can be controlled and the future direction and judgment are consistent, there will be a huge profit.

Disadvantages: in the initial stage, the average cost is raised faster, it is easy to fall into a passive situation, the price can not cross the break-even point, in the trapped situation. Like the funnel method, the more reverse the change, the larger the position. When it reaches a certain degree, it is bound to hold the whole position, and as long as the price changes a little in the opposite direction, it will lead to an explosion.

3 pyramid position management method

The amount of capital for the initial entry is relatively large. In the future, if the market runs in the opposite direction, the position will no longer be increased. If the direction is the same, the position will be increased step by step, and the proportion of the position will become smaller and smaller. Position control is large at the bottom and small at the top, like a pyramid, so it is called a pyramid position management method.

Advantages: the position is controlled according to the rate of return, and the higher the winning rate is, the higher the position will be. Take advantage of the persistence of the trend to increase your position. In the trend, there will be a high return and a low risk rate.

Disadvantages: in a volatile city, it is more difficult to get profits. The initial position is heavy, and the requirement for the first entry is relatively high.

04 compared with the three methods of position management, the pyramid position management method is the best.

1 comparison 1: funnel position management method and rectangular position management method, after the first entry, the market runs in the opposite direction, but is still sure that the late trend will run in accordance with their own judgment, position management.

The pyramid position management method is that after entering the market, if the market runs in the opposite direction, the position will not be increased, and if the stop loss is reached, the stop loss will be carried out. The first two methods belong to the counter-market operation method, and the latter is the homeopathic operation method.

2 comparison 2: funnel position management method and rectangular position management method, the correct premise is that the future market is carried out in accordance with the predicted trend, and the position is getting heavier and heavier, in the case of no explosion, you can make a profit, for investors, the risk is greater. Pyramid position management method, at most, is the loss of a certain proportion of the first entry funds, rather than the risk of all funds, so the pyramid position management method bears less risk.

3Contrastive conclusion: choose pyramid position management method.

Advantages: through the above analysis and comparison, we can see that the pyramid position management method has more advantages than the other two methods, and it is a scientific position management method. If a trade is profitable, traders should try to take advantage of the persistence of the trend to increase their positions, but require subsequent positions to be lighter than previous positions.

Pyramid position management is generally based on support line and resistance line. After entering the market, according to the development of the market, that is, the corresponding risk-reward structure changes, follow-up stop-loss way to change the position management.

When we move on as assumed, each time we break through a resistance line and rise a certain distance, or after stepping back to confirm that the pressure line has become a valid support line, we move the stop below that support line.

Defect: in addition, it should be noted that the pyramid position management method can bring huge profits in the unilateral market, while in the volatile market, there will be more trigger stop-loss phenomena, resulting in small losses or low profitability.

However, the profitability in the unilateral market is enough to make its shortcomings in the volatile market seem negligible, so it is very suitable for large and medium-sized capital investors or investors with conditions to mark the market.

05 application of position management in different markets

1 downward trend (including bear market)

The falling market position should be light to avoid the risk of market decline. Even if the company's performance is excellent and investors are prepared to hold it in the middle line, they can only use a small number of positions to build tentatively positions in batches, and it is necessary to stop losses if they fall below the 60-day moving average (medium-term moving average).

In a bear market, stocks that do not fall below the 250-day line (long-term moving average) are good stocks. In fact, there are very few stocks that can actually cross bulls and bears.

For example, in the second quarter of 2018, the Shanghai Composite Index effectively fell below the 60-day moving average and the 250-day moving average, and the stock market began to fluctuate and fall. Investors who hold heavy positions at the beginning of the year, once the stocks are tied up, are often psychologically unwilling to accept this reality, but choose to escape, resulting in deeper and deeper sets and heavy losses.

If the position is light and strict stop loss can be achieved, the situation will be different. Operating stocks in a bear market can also accumulate a lot of practical experience, and the stock market master who has survived the bear market must be rational, broad-minded and strong in life.

2 upward trend (including bull market)

The rising market needs a heavy position to gain the maximum profit, and the increase of positions is also when the market turns.

For example, in January 2019, the Shanghai Composite Index stood on its 60-day moving average, and on February 25, it rose 5.6%. Changyang broke through the 250-day moving average, with trading volume sharply magnified and an upward trend formed. At this time, investors can be bolder and change their bear market thinking. As long as the company's performance is excellent and the stock price does not fall below the 10-day moving average in the short term, it will firmly hold shares.

In the bull market, some radical investors will continue to increase the principal investment, and even borrow money plus leverage, which not only magnifies the income, but also contains huge risks. The rise in the first quarter, in addition to the continued purchase of foreign capital, the continuous expansion of the scale of financing has also played a role in adding fuel to the flames. After the risk education of "leveraged bull" from 2014 to 2015, ordinary investors are advised not to invest in stocks with financing and leverage.

3 concussion city (consolidation)

In the concussion city, it is necessary to control the position and pay attention to the rhythm of operating the stock. The index will fluctuate horizontally in an interval, forming a form of pressure at the top and support at the bottom. China's stock market has always been short and long, and the shock market can be in the bottom-building stage at the end of the bear market or in the consolidation stage after the bull market has risen, which requires investors to treat them differently through the accumulation of experience.

If you fall below the support level, the bottom failure should stop in time; break through the pressure level, along with the effective amplification of trading volume, you can increase the position, the main force begins to enter the pull-up stage.

Conclusion

No matter whether the capital is big or small, position management is a very important practical link in the stock market. Because the position determines the state of mind, if you encounter a big shock, people with heavy positions will panic and make wrong judgments and operations.

When we invest in stocks, we should keep in mind that protecting principal is the first principle and profit is the second principle. Investment decisions are judged by probability and expectation, and we cannot guarantee that we will go up as soon as we buy and fall as soon as we sell, so we should exercise strict risk control in the process of trading, especially when there are systemic risks in the market. for example, the risk of A-share shorting brought about by this continued circuit breaker of US stocks.

Institutional investors in the market have strict quantitative risk control over their positions, and we individual investors should also do a good job in risk control in the face of stock market decline, because our positions are smaller than them and the boat is small and easy to turn around. it's easier to control risk.

Only if we do so, can we live in the market for a long time. We don't want to be the star in the market. We want to be the birthday star who follows the growth of enterprise value.