Position Management: The Trader's Winning Secret

The core of investment trading lies in how to grasp the balance of gains and losses. Every trader has faced such a dilemma: being under-leveraged in successful trades, while continuously increasing the position in unsuccessful trades.

Position management is one of the most challenging skills in trading, but mastering it can greatly enhance trading effectiveness. Top traders continuously explore ways to optimize position management, as a misjudgment can lead to consequences that are hard to bear. Although there are still shortcomings at the execution level, position management is one of the areas I have excelled in during my career, compensating for many of my deficiencies in other areas.

A classic case is the short selling of the pound by Druckenmiller and Soros in 1992. Druckenmiller discovered that the Bank of England was artificially supporting the pound exchange rate, and he believed that this practice was unsustainable. He suggested to Soros to bet all their funds on shorting the pound. Soros not only did not oppose it but also recommended doubling the position, believing that such an opportunity comes once in 20 years. Ultimately, this trade made a profit of $1 billion in a single day, becoming one of the most famous trades in financial history.

My most successful trade happened in November 2024, when certain trading platforms announced the launch of $PEPE. While executing this trade, I kept recalling the legendary stories of Soros, thinking about how he would operate in this situation.

That early morning, I checked the market information as usual. I had made a small purchase of some $PEPE, but the position was in a loss state. Suddenly, I saw the price rise sharply, and then learned that a trading platform would launch $PEPE. After confirming the authenticity of the news, I realized this could be a significant opportunity.

The price of $PEPE surged from $0.000012 to $0.000016. This news is important because it provides retail investors in the United States with a convenient purchasing channel. I have a hunch that the market will soon understand the significance of this.

At that time, the all-time high of $PEPE was $0.000017. One of my favorite trading strategies is to break through all-time highs. I bought 5 times the amount of my current position at market price, almost using 2 times the leverage of my entire portfolio. Although the position size made me uneasy, I felt unusually calm inside because I firmly believed this was the right choice.

In the next few hours, more platforms successively announced the launch of $PEPE, driving the price to break historical highs, ultimately reaching $0.0000255. That day my profits were nearly 100%, surpassing the total of the past few months, fully demonstrating the importance of reasonably adjusting positions during critical opportunities.

However, behind every successful heavy position story, there are countless cases of failure. Finding the balance between confidently placing bets and respecting the market is not an easy task. Sometimes you are full of confidence in your heavy position, yet you incur continuous losses; other times you choose to hold on, only to find that your portfolio has significantly shrunk. This skill is indeed difficult to master.

I have personally experienced multiple failures with heavy positions, but strict risk management has always been my principle. If the market trend does not align with my expectations and the losses continue for a period of time, I will choose to cut my losses. No matter how confident I am in my judgment, the market is always right.

Never be reluctant to part with losing trades; better opportunities will always arise. Although there are always ideas worth putting in large positions, if the portfolio suffers too much loss, it will be impossible to seize the best opportunities.

Avoiding significant losses is the most critical concept in risk management. The definition of "significant losses" varies from person to person. In my early days of building a smaller portfolio, I had to take on greater risks, often betting 10-15% of my capital on high-conviction trades. As my investment scale expanded, I entered more liquid markets and could not take on such large risks. It is very important to clarify your risk tolerance so that you can clearly understand how much loss you can bear with each trade.

This is why one of my favorite trading strategies is breakout. I prefer top breakouts because it is a clearly defined risk trade, either profitable or quickly invalidated. For example, in the $PEPE trade, I choose to enter when the price approaches the historical high but fails to break through, or when it breaks through and then falls back below the high. In both cases, I have clear exit points, so it is reasonable to build a large position at this level.

Looking back on my trading career, the significant growth of my portfolio mainly came from a few "all-in" trades. Each year, only a handful of trades generated the majority of the profits. Beyond that, it is more of a survival game. You must stay sharp to identify trades that can bring huge returns while also exercising discipline to avoid losing all your funds on ideas that lack conviction, or continuing to add to losing positions.

In the future, one important aspect I hope to improve is my Position capacity. I am good at making large bets, but I am not good at holding on in situations with a lot of unrealized profits. This stems from my inner sense of risk management, but if I can better stick to my judgments and reduce frequent operations, I believe I can achieve better results.