Why do most people lose money? 5 Tips for Effective Risk Management in Investing (Part 1)

Investment is not gambling. In this field, for some people, sometimes preserving capital may be more important than making more money. In the previous article (September 4), we briefly discussed the basic situation of the current bull market by reviewing the last bull market. I also mentioned that, personally, I do not care about any short-term fluctuations in the market. My core idea is to focus on the amount of cryptocurrency I hold, meaning as long as I can ensure that the amount of Bitcoin I accumulate continues to increase, I do not care much about the current price fluctuations.

In previous articles, we have also mentioned multiple times that the best strategy for accumulating cryptocurrency is to make good use of the patterns of the larger cycles. For example, during a bear market, allocate funds wisely and buy regularly. Then, when the bull market reaches your expected target, you can sell a portion in batches and use the profits to continue buying during the next bear market, engaging in this simple cycle repeatedly.

Moreover, there are many comprehensive indicators that can assist in this process, such as AHR999 (Accumulation Indicator), Rainbow Chart, 2-Year MA Multiplier, 200 Week Moving Average Heatmap, The Golden Ratio Multiplier, MVRV Z-Score, RHODL Ratio, NUPL Indicator, AASI Indicator, CBBI Index, etc. We have also introduced these indicators in previous historical articles.

On the basis of strict position management, find one or several auxiliary indicators that suit you best (if you are a technical trader, you can even develop or create your own exclusive indicators based on certain data dimensions), and combine them with the market's development dynamics (fundamentals, news, macroeconomic factors, etc.). Learn to befriend time, and after persisting through several cycles (assuming a cycle is 4-5 years), the probability of making money is actually quite high.

However, the reality is quite the opposite. The simplest strategies are often the hardest to stick to because many people hope to make quick money (to earn a lot in a short time). Therefore, we can also observe that in this field, it seems that most retail investors ultimately lose money.

In recent days, important data has been continuously released from the U.S., causing further fluctuations in various financial markets (including the cryptocurrency market). In light of the non-farm payroll data released by the U.S. yesterday (September 6), although many analysts believe that a Fed rate cut is almost a certainty, the market has also raised concerns about a recession in the U.S. economy. As a result, the four major U.S. stock indices collectively plummeted, and Bitcoin experienced a sharp drop.

It is likely because the market performance has not been good in recent days that I noticed some friends venting their emotions through comments below the article, so I directly blocked some individuals who came in with disrespectful remarks. If someone chooses to unfollow me (Hua Li Hua Wai) because I have consistently held a positive view on Bitcoin, then besides proving that you are being controlled by emotions, it will not have any impact on me (Hua Li Hua Wai).

At this stage, the main reasons affecting the trend of the cryptocurrency market, apart from macro liquidity, also include the narrative ability of the cryptocurrency sector itself. In other words, under the influence of macro liquidity, the cryptocurrency market needs to see an important (or new) catalyst to potentially revive imagination and further give rise to a new bull market. As we mentioned in the previous article (September 4), we may need to continue patiently waiting for a trend change this month (September).

Regarding the current market situation, the decisions you need to make are not complicated:

If you no longer believe in the cryptocurrency market and do not believe that there will be a bull market this year or next year (2025), whether based on others' opinions or your own indicators leading to this judgment, then you can completely choose to liquidate your position, short the market, or simply do nothing.

However, if you still believe that a bull market is ahead, then during this period, you can buy small amounts during minor dips and larger amounts during significant dips (currently only buy Bitcoin spot; once the market direction is clear again, you can consider building positions in altcoins you previously favored), and how much you can accumulate depends on your position management.

For mature traders, my above views may not be of much help or impact, because regardless of market fluctuations, a mature trader can profit using various methods such as swing trading, going long/short, etc. But if you are just an ordinary investor, then try to adjust your mindset, and do not attempt to outsmart the market with your perceptions (personal feelings or hearsay). The market cannot be accurately predicted by anyone; what you need to do is manage risk well.

In other words, effective risk management is one of the most important basic strategies to avoid losing money in this field and is crucial for achieving long-term success.

So, how should we specifically understand risk management?

Regarding the topic of risk management, previous articles have already covered some aspects, such as management based on position allocation ratios and management based on investment targets, etc. In this issue, we will continue to expand on this topic.

1. Do not try to buy at the lowest point and sell at the highest point

Many people always try to buy at the lowest point. For example, when Bitcoin was at $15,000, many were waiting for it to drop to $10,000. When Bitcoin rose to $40,000, many were again waiting for it to drop to $15,000. Now that Bitcoin is at $56,000, many are waiting for it to drop to $40,000.

Since you are already paying attention to and hoping to buy an asset, I believe you have at least done some basic research on it and are optimistic about it. If you want to swing trade, then study the candlestick indicators and keep an eye on market dynamics, and execute and optimize based on a certain strategy. If you want to engage in medium to long-term operations, then regardless of whether you are building positions on the left side or the right side, just accumulate in batches at levels you can accept. There is no need to care about what others are saying; timing is something you need to grasp yourself, not something to follow based on others' opinions.