How does the profit expectation from opening a position affect trading mentality?

The amount of profit you desire and the amount the market can offer you are fundamentally different concepts. The market may not necessarily give you the profit you want, but it might also give you more. Therefore, our human nature curve and the market's nature curve are completely different.

For example, let's talk about the M-head pattern, right? After breaking through the neckline, how much should it move?

We anticipate it will move in a 1:1 ratio. Suppose this distance is 200 points; if it doesn't reach there, and I set my take-profit level at 1:1, it might not get there and could turn back before reaching it. It's also possible that it could drop significantly and then rise again; anything is possible.

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So, how does our expectation affect our trading mentality?

For instance, if it doesn't reach your profit target or your take-profit level, and it turns back, you don't earn the money you should have, and it hits your stop loss.

How can we protect our profits and ensure our mentality is not affected by our profit expectations? The most important method is that we must understand floating profits.

Floating profit and profit are two different concepts. Your principal, your balance, in essence, the money in your pocket, is calculated by what? After you open a position, for example, you now have three orders in your position; how is your final balance calculated?

Your balance, the money you have at the end, is calculated by your balance minus your stop loss, or if I have already pulled up a break-even stop loss, it's the money you get after subtracting your break-even stop loss, which is your profit. As for the extra part that moves out, as long as it hasn't been closed out in a day, it's not your money; that's called a floating profit.

So, everyone, if you want to make money in the trading market, you must first resist the weaknesses of human nature. We often treat money that we haven't earned yet as if it were already our profit.For example, let's say I buy a stock at 5,000, and it rises to 10. As long as you don't sell it within a day, that money isn't yours, right? Then it falls to 8, and you think, "Oh no, if I had sold it then, I would have turned those 2 into my money," correct?

So your mindset is greatly affected, which is why you're reluctant to exit here, and you're also reluctant to set a break-even stop loss, only to be stopped out. The market is unpredictable; we only say that after breaking through the neckline, there's a high probability it will move 1:1, but we don't say it will definitely move 1:1, do we?

Let me give you another example. We see a triangle, and after it breaks out, how should we view it?

We might say, "Teacher, it's a 1:1," but the market may not give you exactly 1:1. It could be a bit more, a bit less, or much less, all possibilities.

Now that it's trending downward and the direction is correct, we've entered a short position, and we've set our stop loss. It breaks through this area.

Let's say it's 500 points, and we're aiming for 500 points, but it doesn't reach that. It goes to 300 points and then retraces, is that possible? Very possible, right?

So how can we protect our profits and not let our mindset be affected?

First, you must understand that paper profits are not your money; second, it depends on the size of your capital and whether your position is too heavy.

For example, if you're a novice trader and you invest a small amount of money, say, a few thousand dollars each time, is that okay? Yes, it is. But you must remember, since you're investing a small amount, if your position isn't light, the one thing you should do that won't affect your mindset is to pull your stop loss to break-even in a timely manner.

You might say, "Teacher, my stop loss was hit, and it went down further. Is that possible?" Yes, it is, very much so. What then? There's nothing you can do, absolutely nothing.In trading, we are essentially pursuing a probability. We have methods for setting stop-loss orders to protect our capital, rather than haphazardly adjusting them. For instance, if the price drops slightly, we raise our stop-loss order, which makes it highly likely that your position will be closed out, right?

How do we adjust our stop-loss orders?

After a breakout, if the price retraces and touches a key level or fails to reach a key level before dropping, that's when we need to adjust our stop-loss order. In other words, after a breakout, if the price reaches your stop-loss level, the short-term trend may change.

If you are a trader with a small capital, it is crucial to protect your profits in a timely manner.

What does it mean to protect your profits in a timely manner? If my stop-loss order is triggered this time and I don't incur a loss, and next time my stop-loss order isn't triggered, the price goes up and then down, I can earn the profit I deserve, and my profit-taking level is reached, right?

We engage in the market with the smallest possible risk and capital risk, and the market gradually gives us money. This way, we can avoid being affected by market losses, which can influence our trading mentality.

I would recommend a book for everyone to read, titled "Thinking, Fast and Slow," written by the renowned psychologist Daniel Kahneman. It primarily studies psychological issues, dividing human thought into fast thinking and slow thinking, System 1 and System 2. I won't go into too much detail here, but I encourage you to read it.

This book should be of great help to your investment strategy and decision-making.

It contains two very beneficial viewpoints for me. One is loss aversion. Often after we suffer a loss, we experience loss aversion, which is a particularly typical human weakness and a dislike for losses. Therefore, either I cut my position and suffer a slight loss, or after my stop-loss is triggered, I refuse to admit defeat and keep moving my stop-loss upwards until it leads to a margin call.

Thus, loss aversion is the most impactful factor on our trading mentality.So, if you are working with a small capital, it is crucial to protect your profits in a timely manner. Never let your profits be quickly given back, as this can significantly impact your mindset and subsequent operations.

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