Traders' understanding of trading gradually transitions from the emotional to the rational. During the initial emotional phase, we rely on our subjective consciousness to conduct trades, and the outcomes are often less than satisfactory. After experiencing some harsh losses, we may enter a period of rationality, where we begin to learn and summarize, developing our own technical methods and trading cognition, thus slowly getting on the right track of trading.

The transition from the emotional phase to the rational phase is a challenging process, and there are no shortcuts. It relies on learning, practicing, and summarizing. Some individuals have strong learning and summarizing abilities, and if they encounter relatively correct methods, they can enter the rational phase more quickly. However, most people have limited energy for learning, and if they encounter inappropriate learning methods, they may become lost in the quagmire of their own human nature, finding it difficult to escape.

Today, I will combine my own trading experience to summarize 10 truths about trading for you. Although they may be a bit harsh and painful, remember that good medicine tastes bitter, and they will definitely be helpful to you.

1. The market is unpredictable.

"Do not predict the market," I have emphasized this statement no less than 100 times.

Many traders are always racking their brains to study magical indicators or magical technical methods that can accurately predict future market trends, hoping that the method can always be profitable without losses. This is the starting point of a misconception in trading.

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In theory: The future is unknown, and the unknown, by definition, is something that cannot be known in advance. The future market trends are forever unpredictable.Real-world example: During the 2008 U.S. subprime mortgage crisis, the geniuses on Wall Street did not predict the sharp decline.

The Federal Reserve is the world's leading central bank, how prestigious and powerful it is, I recommend everyone to read the book "The Federal Reserve." The book talks about how the Federal Reserve has taken actions of raising and lowering interest rates to curb inflation and deflation.

But in fact, they have made many mistakes in the operations of raising and lowering interest rates. The Federal Reserve simply cannot predict what the financial market will look like after a rate hike. It only adjusts policies step by step based on the market's performance after the rate hike. Every operation of the Federal Reserve is a trial-and-error process.

Even top financial institutions like Wall Street and the Federal Reserve, with so many advanced technologies and methods, as well as highly intelligent staff, cannot predict the trend of the financial market, let alone ordinary people like us.

So don't believe in the matter of prediction, prediction will only make you lose yourself in inertia, become lazy in thinking and lazy in effort, and will also bring endless losses.

2. Trading is about expectations, and rules are very important.

First, let's talk about expectations: still taking the Federal Reserve as an example, when the U.S. CPI data is higher than expected, the higher the CPI data, the greater the extent of the Federal Reserve's rate hike (the market expects the Federal Reserve to raise rates by 100 to 125 basis points), and there is a strong expectation for the U.S. dollar index to rise, which is the expectation of trading.

After having expectations, traders trade this expectation according to certain rules.

Expectations may not become a reality. Whether the U.S. dollar index will rise after a rate hike, or how much it will rise, is unknown. After all, the current market has a strong expectation for the next rate hike by the Federal Reserve, and the market may have already formed a trend before the Federal Reserve's rate hike.

Therefore, what we need to do is: after generating expectations for the market's bullish and bearish, trade according to the rules.Trade consistently based on expectations across multiple scenarios, following a uniform set of rules for entry and exit. Fundamentally, a Federal Reserve rate hike is a bullish expectation. Technically, a golden cross of moving averages is also a bullish expectation; they are the same.

Traders must implement trading rules to make more profits when the trend aligns with expectations and to minimize losses when it does not. The balance between these two results in overall profitability. Profits are achieved by seeking advantages in the probability of trading rules and the risk-reward ratio.

3. Trading is simple, but human nature is complex.

As mentioned above, trading involves forming expectations and executing rules. Placing orders and leaving gains and losses to the market is the essence of trading.

Trading inevitably involves being right and wrong, making profits and suffering losses. This principle is simple, but it goes against human nature.

For instance, the tendency to seek benefits and avoid harm is a significant weakness in human nature. Cutting losses and retracements imply a loss, which is against human nature. Therefore, most people cannot accept order stop-losses or profit pullbacks. When you only want to win and not lose, you fall into the trap of trading again.

In fact, most profitable trading strategies are quite simple, but human nature often pursues perfectionism. People always want to buy at the lowest point and sell at the highest point, not wanting to make mistakes or miss opportunities.

Someone once asked me, considering the probability of flipping a coin, shouldn't the trading market be a 50-50 split between profits and losses? Why do so many people lose money?

Ignoring human nature, the essence of trading is very clear and simple. However, once human nature is introduced, it's like throwing oneself into a maze. When you are in the center of the maze, it is difficult to see the whole picture and even harder to find your way out.

Thus, what is complex in the trading market is never the trading techniques, but the challenge of combating human nature.4. Do not be confined by conventional wisdom; profit is the sole objective.

Some time ago, a trader left me a message saying: According to the Elliott Wave Theory, the third wave is the longest, but many times it's simply not the case. Did I count wrong? Can the Elliott Wave Theory be wrong?

The Elliott Wave Theory is not necessarily always correct. There are numerous instances where the first or fifth wave is longer than the third wave. Do not get trapped in the mindset of whether the knowledge you have learned is correct or not after studying something.

What we need to prove is not whether what we have learned is correct, orthodox, or mainstream, but whether our trading methods can achieve profitability.

Just like the sayings "chasing the rise and killing the fall," and "contrarian trading," some people may think they are heretical and not the right path.

But in my view, whether a cat is black or white, if it can catch mice, it's a good cat. In my eyes, there is no superiority or inferiority among methods, only the difference of whether they can make a profit.

Counting waves is for the purpose of making a profit, and the method of counting waves does not have to adhere to the views of the Elliott Wave Theory. That's why I often emphasize that when learning something, it is essential to take the essence and discard the dross. The Elliott Wave Theory has its merits, but the problem lies in how to quantify the method of counting waves to make it standardized and easy to implement. We should focus on solving this issue instead of getting caught up in the correctness of its details.

Your focus changes, and so does your perspective. Break the shackles and take profit as the only starting point to establish your own cognitive and technical system. This is the right path to trading.

5. Being in a cash position and holding a position are two completely different mental worlds.

Many traders can be very calm and objective before entering an order, analyzing the market and making trading plans. However, once they enter the market, they start to become anxious and lose, and problems arise in execution.Orders are profitable, and there is a fear of giving back profits, which leads to some wavering in the original direction of persistence; when orders are losing, there is a fear of stopping losses, resulting in an irrational persistence in the wrong direction, and one's judgment seems to change completely when not holding a position compared to when holding one.

We must understand that the psychological pressure when not holding a position is completely different from when holding one, and what one thinks of when not holding a position may not necessarily be achievable when holding one.

Therefore, we must take a step back from our own psychological expectations, anticipate our own psychological tolerance in advance, reduce our position size, and lower the difficulty of executing the trading system. For example, making the success rate and profit-to-loss ratio more rational, or making the rules for judging the market trend simpler and clearer, all of these are very helpful optimizations.

That is why we often say that the greatest truth is the simplest, all for the sake of a stable mindset.

6. The most losses come from short-term traders.

Let's start with the data: According to the statistics from the 2019 Futures Daily Live Competition, the group with the most losses was the lightweight group with less capital. The lightweight group consisted of 40,000 people with a total capital of 3.95 billion, and they lost 1.4 billion, generating 540 million in fees. Of the amount lost, 40% of the losses were fees.

On the other hand, the group with the most profits was the fund group with the largest capital. Although their capital was large, the fees generated were the lowest because their trading frequency was lower.

Looking at the trading results, the more frequently one engages in short-term trading, the more losses one incurs.

From a practical standpoint, it is not difficult to understand that in short-term trading, market fluctuations have a greater psychological impact on traders. Many inexperienced traders are easily carried away and trade frequently without any rules, leading to severe losses.

By extending the trading cycle and maintaining a distance from the market, one can remain more calm, which is actually more conducive to making profits.7. Many people can achieve short-term profits.

Many individuals share a similar experience: when they first start trading, or during simulated trading, they often find themselves consistently profitable. At such moments, they may believe they have discovered a method for making profits, or even consider themselves trading prodigies with exceptional talent.

In reality, this is the greatest illusion in trading. Even if the failure rate of a venture is 99%, everyone tends to think, "Why can't I be that successful 1%?" while overlooking the need to bear the risk of 99% failure.

There are also those who enjoy showing off their trading records, only to find after a month, two months, or three months that they are all in profit, which tempts many to become eager to join in. However, they eventually discover that many trading strategies do not hold up to long-term scrutiny.

The so-called "newbie's luck" occurs simply because newcomers to trading have a limited understanding of trading techniques and follow a simple pattern. If they happen to encounter a market phase that aligns with their approach, they can make money.

Moreover, as newcomers have not yet experienced losses, they do not understand the risks and, consequently, do not have the fear that comes with trading. This allows them to act boldly, and if they encounter a favorable market trend, they may even make a significant profit.

Thus, making money in stages is quite normal, but market trends can alternate and change. If they encounter a market phase that does not cooperate, it could lead to severe losses or even a margin call.

Therefore, it is essential for everyone to have a clear understanding and not to become blindly optimistic due to short-term profits, thinking they have succeeded and conquered the market, while neglecting the risks.

8. Mistakes can propagate, and the best approach is to follow rules and avoid making errors.

In practical trading, it is common for someone to mishandle a small order, leading to a chain reaction and significant losses.Inertia in trading: When you hold a long position, it's easier to be bullish, and when you hold a short position, it's easier to be bearish, because that's your "hope," not the reality. At such times, even if the market has already changed direction and the technical indicators are very clear, you still stubbornly insist. What was originally a small stop loss becomes a significant loss due to blind persistence, unwillingness to cut losses, and even adding to the position against the trend.

In practice, we must not harbor any wishful thinking and must strictly adhere to trading rules, avoiding any minor mistakes. If a mistake occurs, it is crucial to stop the loss in a timely manner to prevent the situation from escalating; this is the correct approach.

9. Missing out on everything by trying not to miss anything.

Many of us have experienced this: when the asset we are trading is stagnant, other assets are experiencing significant movements, and we want to participate in them. When our trading system does not present opportunities, but other technical patterns are performing well, we also want to get involved. In short, we want to trade in every market movement and miss out on nothing.

The financial market is a place full of temptations, with fluctuating trends every day, different assets, and various cycles, all offering opportunities. Each opportunity represents potential profit, and many people become blinded and greedy in the face of these dazzling prospects.

Indeed, the market is full of money, but only what we can grasp is truly ours. It's important to thoroughly understand our own trading assets and techniques, not to be overly greedy, not to complicate things, not to feel idle, and not to be restless. Often, behind greed lies loss.10. Novices tend to be more greedy, while veterans tend to be more fearful.

Newbie traders, upon entering the market, find everything fresh and exciting. Before they start trading, they have boundless aspirations for it. More aggressive newcomers may even view the market as a gold mine, believing that achieving life goals and financial freedom are easy tasks, without any sense of risk, focusing only on making quick and large profits.

If these newcomers happen to have a lucky streak and make some money, they can become overly confident and ambitious.

Ignorance is bliss, which is why I've always believed that losing money upon entering the market is actually a good thing, as it engrains a sense of risk awareness deep within you. On the other hand, making a profit right away is not necessarily a blessing from the heavens; it might be opening a door to your greed, with an endless abyss waiting behind it.

Veteran traders, in contrast, have been battered by the market, tried various strategies, experienced numerous failures, and suffered losses. These experiences can leave a lasting impression, making them cautious and anxious about every trade, often correctly predicting market trends but failing to execute orders properly.

If you are a novice in trading, do not be blindly optimistic. Trading is not that simple, so do not blindly pursue windfall profits. Learn more, observe more, and trade less.

If you are a seasoned trader, do not be disheartened or undervalue yourself. Trading is not as complex or difficult as it may seem. By reviewing past trades, summarizing experiences, and making corrections, you can gain new insights and start anew.