Today, let's talk about position management while the market is down.

Position management is essentially risk management, or more bluntly, stop-loss. You often hear people say not to go all-in or invest everything at once. For example: Influencer A suggests only buying 30% of your position, while Influencer B says not to exceed 50%.

All of the above is nonsense.

Position management should be calculated based on your total capital to be reasonable. The general consensus in trading is that the total capital risk should not exceed 6%, with each trade risking 1%-2%.

For example: Total capital is 10,000 USD, with each trade risking 1%, i.e., 100 USD.

The stock S you want to buy is currently priced at 100 USD, with a stop-loss price of 90 USD, a difference of 10 USD.

100 ÷ 10 = 10—this 10 is the maximum number of shares you can buy, with a position value of 1,000 USD. Following the 6% rule, based on the stop-loss difference of stock S, you can buy up to 5 other stocks. When fully invested, your position value reaches 6,000 USD, and your total position reaches 60%.

If stock S rises quickly, you can also raise the stop-loss to the purchase price (including fees), i.e., break-even. The 100 USD risk is then freed up, allowing you to buy another stock with the same risk level. If all your stocks reach break-even, you can even leverage further.

Note that the above ratios are maximums—you can always go lower. For example, if you have 1 million USD and losing 10,000 USD would upset you, you can reduce the risk to 0.5%.

It’s strongly recommended that naive investors keep their risk exposure below 0.5%, especially those still in the recovery phase. The more you trade, the better your skills become, and your win rate will improve. Only when your win rate is consistently high should you gradually increase risk exposure. Also, remember that the stop-loss mentioned above is the maximum—if a stock performs poorly, you can exit early.

Risk management is the moat of trading. Only when this moat is unbreakable can you remain calm and trade rationally during market panic, rather than hesitating.

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