Trader Lin recently shared trading insights including technical analysis, risk management, and psychological factors, suitable for beginner traders or those frequently experiencing losses. Below are the details.
Trade with the Trend
Strong uptrends often bring substantial profits. You should always trade with the trend. As the saying goes: “The trend is your friend.” This is absolutely correct. Investing is a probability game. Therefore, you need to improve your odds as much as possible.
Buying stocks in an uptrend is like sailing with the wind—everything feels easier. Prices rise faster, last longer, and progress becomes smoother. When sailing with the wind, even small pushes can generate massive returns. This is why everyone feels like a genius in a bull market.
So, how do you identify a trend?
Identifying trend direction usually takes only seconds. A trend is simply the overall direction of data points in a time series. Here’s what an uptrend looks like:
First, the chart extends upward from the lower left.
Second, there’s a series of higher highs and higher lows.
Of course, downtrends work the same way.
To identify these trends, you can also use simple tools like trend lines or moving averages to help determine the overall direction.
Importantly, markets exist across different timeframes.
The market may decline short-term but remain in an uptrend long-term. Or the market may perform strongly short-term, but the long-term trend could be weak. You need to choose a timeframe suitable for your strategy.
Day traders focus on hours and days, swing traders look at weeks, and long-term investors focus on years. Your profit opportunities are greatest when all timeframes (short, medium, and long-term) align.
Most of the time, the market lacks a clear trend. Clear, strong trends occur only a small portion of the time. The rest of the time, markets move sideways.
For active investors, sideways markets are the most dangerous. With no clear direction, extreme volatility, failed breakouts, and failed pullbacks, you’ll be whipsawed constantly. Each time you think the market will move favorably, it hits a wall and reverses.
Of course, if your trading cycle is shorter, you can still profit from these fluctuations. But for most people, doing nothing is often the best choice in such situations.
Overall, however, big money is made in strong uptrends. There are two main reasons:
First, stocks in uptrends tend to continue rising: when a stock is already rising, it’s more likely to continue rising than to suddenly stop. Market sentiment is optimistic. Everyone focuses only on gains.
Second, there’s usually little or no selling pressure from above: this means most holders are already profitable. They’re not desperate to sell. With fewer sellers, prices rise more easily.
However, not all trends are created equal. Some trends are slow and steady. Others are rapid and steep. The steeper the trend, the stronger it appears. But there are pros and cons to everything.
Fast-rising stocks are more fragile. When prices rise too quickly, they become overbought. This makes them more prone to sharp pullbacks or sudden reversals. So strong trends are powerful but need careful handling.
The goal is to trade with the trend while it persists, but nothing lasts forever.
Focus on Leading Sectors
After determining the overall market trend, you need to identify leading sectors. The importance is obvious.
Investing is a probability game—you want as many factors working in your favor as possible.
Ask yourself: would you buy newspaper company stock today? Probably not. Few people read physical newspapers anymore. Everything is online. The market isn’t expanding; it’s shrinking. Demand naturally declines. Finding and retaining customers becomes harder. Retaining quality employees is also more difficult. Employees are less willing to join an old, stagnant industry. These are naturally unfavorable factors.
Now consider the opposite.
Artificial intelligence is currently one of the strongest industries. Everyone wants to work in AI. It has natural appeal. Talent, capital, and attention all flow in the same direction. Growth becomes much easier.
A leading industry is like a rising tide that lifts all boats. Not everyone benefits equally, but the overall trend matters.
Ideally, the entire industry should perform well. If all companies perform poorly except one, it often means the industry has peaked or is about to decline.
Of course, no trend lasts forever. Some industry trends last decades; others last only days. The key is capturing the big trend.
Big trends are long-term changes that reshape an industry. Examples include railroads, the internet, mobile technology, and today’s artificial intelligence.
Boom-bust trends refer to brief peaks followed by sharp declines. Examples include SPACs and meme stocks.
Cyclical trends fluctuate with economic cycles. Oil and gas are perfect examples, with prices rising and falling with demand and economic growth.
Buy Market Leaders at Market Bottoms
Once you’ve identified the overall trend and leading sectors, you can buy leading companies. The reason is simple. Most people want the best—it’s human nature.
Look at sports. Everyone talks about World Cup champions or Olympic gold medalists. News headlines, interviews, sponsorships, and history books focus on first place. Few remember who was second. Winners get all the attention, money, and status.
A simple example:
Who is the fastest person on Earth? Usain Bolt. Who is second fastest? Most people don’t know. Actually, Bolt wasn’t that much faster than second place. But nobody really cares about second. It’s all about the best, fastest, and winner.
The same applies to business and investing. Winners get the most attention. They attract more customers, talent, and capital. Success reinforces itself, making staying first easier.
For companies, this means your product is compared to others. Employees want to work for the best company. Investors want to invest in the best company, not the second-best. This advantage might seem insignificant at first, but over time, these small advantages accumulate and eventually create massive impact. This is why winners keep winning.
Every industry has a market leader:
Smartphones: Apple
Search engines: Google
Large language models: OpenAI
Graphics processors: Nvidia
These industry leaders are far ahead of competitors.
What creates market leaders? Large and growing market share, fast revenue and profit growth, strong brands, continuous innovation, and top founders (teams).
When should you buy leader stocks? Buy when the market is in an uptrend and the stock breaks out of a base. The reason is simple. Investing is risky; many things can go wrong. You can’t eliminate risk, but you can reduce it.
There are several ways:
Do thorough research, catch the market uptrend, focus on strong companies, time your entry correctly.
Timing is more important than most realize. Buying at the right time reduces entry risk. It also makes clear when problems emerge. If the price breaks below your entry or key support, that’s your signal to exit or cut losses. A good entry price helps clarify your exit price. And having a clear exit price is crucial for risk management.
Buying when stocks break out of bases usually carries less risk. Bases are periods when stocks move sideways and consolidate—they’re gathering energy. When they break out, the trend favors you. Momentum strengthens. Less selling pressure from above makes stocks rise more easily.
You’re not guessing; you’re reacting to market strength. This is how you improve your odds.
There are several types of base patterns. Some most common include:
Cup and handle
Flat base
Double bottom
Inverse head and shoulders
These patterns typically appear early in a new wave or trend.
When prices stall after rising, these base patterns are called continuation patterns. The most common continuation patterns are flags and triangles.
Additionally, you can manage risk. When prices break out, three things might happen:
The price continues rising
The price pulls back and retests the breakout area
The breakout fails and early buyers get trapped
Breakouts aren’t always successful. Failure rates can be high. You need to mentally prepare for frequent mistakes.
Most breakout failures occur due to weak markets, stocks not being true leaders, or large institutions selling. This is why risk management is so critical.
You must always prepare for the worst. You must limit downside risk and set a clear stop-loss point.
Accepting losses is hard—nobody likes admitting they’re wrong. But refusing to cut small losses is how small problems become big ones. Most large losses start small. They grow because people hesitate, hoping to exit at breakeven.
Remember: if the price rebounds, you can always buy back in.
Protecting your downside keeps you in the game. This is why controlling odds is so important.
One more tip: watch volume.
Breakouts on high volume are stronger and less likely to fail. High volume means large investors are buying. Large investors leave traces.
Big players can’t hide their moves. They can’t buy their entire position at once. They must accumulate gradually.
Let Winning Stocks Run
Fundamentally, investing is about profits exceeding losses. Everything else is irrelevant. This is what many investors overlook.
They think success comes from finding cheap stocks or chasing hot ones. P/E ratios, moving averages, moats, and business models are just puzzle pieces. They all help. But none guarantee success alone.
What really matters:
How much can you make when you’re right?
How much can you lose when you’re wrong?
This applies equally to day traders and long-term investors. The only real difference is timeframe. The principle is the same.
The most important lesson here is: you’ll make mistakes, and you’ll make plenty.
Investing is a probability game. Even when you think it can’t go lower because it’s cheap, or it must go up because fundamentals are improving, you still make mistakes.
A good rule of thumb: assume you’re right at most 50% of the time.
Think about Michael Jordan missing roughly half his shots. Yet he’s considered the greatest player ever. You don’t need to be right every time for substantial returns.
This happens even during good market conditions.
During poor conditions, it’s worse. Sometimes your accuracy is only 30%. This is normal.
Mistakes aren’t failures. They’re part of the process. Once you accept this, everything changes. Your focus shifts from seeking perfection to managing outcomes.
This simple table clearly shows the relationship between win rate and risk-reward ratio.
It shows that with only 30% accuracy, your wins must be more than double your losses just to break even. To truly profit, wins should be roughly triple your losses. Then your strategy works.
The goal is to incorporate failure into your strategy.
A 50% win rate sounds good but isn’t realistic long-term. Markets change. Conditions deteriorate. This is why your strategy must work even in adverse environments.
Starting with 30% accuracy and a 3:1 risk-reward ratio is a good starting point. You can adjust afterward. But if you don’t know where to start, start here.
What does this mean in practice?
Many investors think buy-and-hold means never selling. That’s only half right. You should buy-and-hold winners, not losers.
You never know how much a winning stock can rise. Sometimes 10%, sometimes 20%, rarely 100% or more. Of course, if your investment thesis fails or fundamentals or technicals worsen, you definitely want to cut losses. But let winning stocks run as long as possible.
To know when to cut losses, calculate average gains. If your average gain is roughly 30%, then to maintain a 3:1 risk-reward ratio, average losses should be around 10%.
Many ways exist to achieve this. You can adjust position sizing or sell in stages, like at -5%, -10%, and -15%. On average, if you sell one-third each time, losses stay around 10%.
The specific method doesn’t matter; the principle does. Big profits require payment in many small losses. Small losses protect you from disaster.
Cut Losses Quickly
After buying a stock, there’s really only one thing you can control: when to exit.
You can’t control how much it rises, when it rises, or even if it rises. The only real choice you have is how much loss you’re willing to accept.
Sometimes bad things happen. Companies report terrible earnings, bad news breaks, stock gaps down overnight. Even if you did everything right, you might take a hit. It’s part of the game. You can’t completely avoid it.
But holding losing stocks is dangerous. The longer you hold, the greater the potential loss. The goal is to exit early while still giving the stock normal daily volatility. Stocks rise and fall daily. You can’t sell just because of minor declines.
Yes, sometimes prices gap down, hit your stop, then bounce up. This does happen. But the last thing you want is: the price drops, you wait for the bounce to exit, but it keeps dropping.
Every massive loss starts as a small loss. And the bigger the loss, the harder it is to recover.
A 10% loss requires 11% gains to break even.
A 20% loss requires 25% gains.
A 50% loss requires 100% gains.
This is why protecting downside is so critical.
Cutting losses is hard. As long as you hold a position, there’s hope. Hope it bounces back. Hope you’re ultimately right. Hope you don’t look foolish.
Accepting losses hurts. Admitting mistakes hurts.
Research shows people need double the gains to offset losses. In other words, the pain of losses is twice the pleasure of gains.
Because as long as the position remains open, losses aren’t final. There’s still a chance to bounce back. Still a chance to prove you right. But once you sell, losses become real, mistakes become permanent. Yet you must accept losses—they’re part of the process.
Nobody is always right. Investing is always uncertain. Investing isn’t about perfection; it’s about making more than you lose over time.
The sooner you cut losses, the better. Holding losing positions usually means something went wrong—perhaps poor timing, wrong stock selection, or unfavorable market conditions.
Also, there’s opportunity cost. Capital trapped in losses can’t be used elsewhere. That capital could be deployed more effectively. Learning to cut losses quickly is one of the most important investing skills.
Related reading: Crypto Trader’s Handbook: A Quick Look at 25 Harsh Truths
初心者必読：ベテラントレーダーが共有する五つの取引「秘訣」
Author: Lin, Trader
Compiled by: Felix, PANews
Trader Lin recently shared trading insights including technical analysis, risk management, and psychological factors, suitable for beginner traders or those frequently experiencing losses. Below are the details.
Trade with the Trend
Strong uptrends often bring substantial profits. You should always trade with the trend. As the saying goes: “The trend is your friend.” This is absolutely correct. Investing is a probability game. Therefore, you need to improve your odds as much as possible.
Buying stocks in an uptrend is like sailing with the wind—everything feels easier. Prices rise faster, last longer, and progress becomes smoother. When sailing with the wind, even small pushes can generate massive returns. This is why everyone feels like a genius in a bull market.
So, how do you identify a trend?
Identifying trend direction usually takes only seconds. A trend is simply the overall direction of data points in a time series. Here’s what an uptrend looks like:
First, the chart extends upward from the lower left.
Second, there’s a series of higher highs and higher lows.
Of course, downtrends work the same way.
To identify these trends, you can also use simple tools like trend lines or moving averages to help determine the overall direction.
Importantly, markets exist across different timeframes.
The market may decline short-term but remain in an uptrend long-term. Or the market may perform strongly short-term, but the long-term trend could be weak. You need to choose a timeframe suitable for your strategy.
Day traders focus on hours and days, swing traders look at weeks, and long-term investors focus on years. Your profit opportunities are greatest when all timeframes (short, medium, and long-term) align.
Most of the time, the market lacks a clear trend. Clear, strong trends occur only a small portion of the time. The rest of the time, markets move sideways.
For active investors, sideways markets are the most dangerous. With no clear direction, extreme volatility, failed breakouts, and failed pullbacks, you’ll be whipsawed constantly. Each time you think the market will move favorably, it hits a wall and reverses.
Of course, if your trading cycle is shorter, you can still profit from these fluctuations. But for most people, doing nothing is often the best choice in such situations.
Overall, however, big money is made in strong uptrends. There are two main reasons:
First, stocks in uptrends tend to continue rising: when a stock is already rising, it’s more likely to continue rising than to suddenly stop. Market sentiment is optimistic. Everyone focuses only on gains.
Second, there’s usually little or no selling pressure from above: this means most holders are already profitable. They’re not desperate to sell. With fewer sellers, prices rise more easily.
However, not all trends are created equal. Some trends are slow and steady. Others are rapid and steep. The steeper the trend, the stronger it appears. But there are pros and cons to everything.
Fast-rising stocks are more fragile. When prices rise too quickly, they become overbought. This makes them more prone to sharp pullbacks or sudden reversals. So strong trends are powerful but need careful handling.
The goal is to trade with the trend while it persists, but nothing lasts forever.
Focus on Leading Sectors
After determining the overall market trend, you need to identify leading sectors. The importance is obvious.
Investing is a probability game—you want as many factors working in your favor as possible.
Ask yourself: would you buy newspaper company stock today? Probably not. Few people read physical newspapers anymore. Everything is online. The market isn’t expanding; it’s shrinking. Demand naturally declines. Finding and retaining customers becomes harder. Retaining quality employees is also more difficult. Employees are less willing to join an old, stagnant industry. These are naturally unfavorable factors.
Now consider the opposite.
Artificial intelligence is currently one of the strongest industries. Everyone wants to work in AI. It has natural appeal. Talent, capital, and attention all flow in the same direction. Growth becomes much easier.
A leading industry is like a rising tide that lifts all boats. Not everyone benefits equally, but the overall trend matters.
Ideally, the entire industry should perform well. If all companies perform poorly except one, it often means the industry has peaked or is about to decline.
Of course, no trend lasts forever. Some industry trends last decades; others last only days. The key is capturing the big trend.
Big trends are long-term changes that reshape an industry. Examples include railroads, the internet, mobile technology, and today’s artificial intelligence.
Boom-bust trends refer to brief peaks followed by sharp declines. Examples include SPACs and meme stocks.
Cyclical trends fluctuate with economic cycles. Oil and gas are perfect examples, with prices rising and falling with demand and economic growth.
Buy Market Leaders at Market Bottoms
Once you’ve identified the overall trend and leading sectors, you can buy leading companies. The reason is simple. Most people want the best—it’s human nature.
Look at sports. Everyone talks about World Cup champions or Olympic gold medalists. News headlines, interviews, sponsorships, and history books focus on first place. Few remember who was second. Winners get all the attention, money, and status.
A simple example:
Who is the fastest person on Earth? Usain Bolt. Who is second fastest? Most people don’t know. Actually, Bolt wasn’t that much faster than second place. But nobody really cares about second. It’s all about the best, fastest, and winner.
The same applies to business and investing. Winners get the most attention. They attract more customers, talent, and capital. Success reinforces itself, making staying first easier.
For companies, this means your product is compared to others. Employees want to work for the best company. Investors want to invest in the best company, not the second-best. This advantage might seem insignificant at first, but over time, these small advantages accumulate and eventually create massive impact. This is why winners keep winning.
Every industry has a market leader:
Smartphones: Apple
Search engines: Google
Large language models: OpenAI
Graphics processors: Nvidia
These industry leaders are far ahead of competitors.
What creates market leaders? Large and growing market share, fast revenue and profit growth, strong brands, continuous innovation, and top founders (teams).
When should you buy leader stocks? Buy when the market is in an uptrend and the stock breaks out of a base. The reason is simple. Investing is risky; many things can go wrong. You can’t eliminate risk, but you can reduce it.
There are several ways:
Do thorough research, catch the market uptrend, focus on strong companies, time your entry correctly.
Timing is more important than most realize. Buying at the right time reduces entry risk. It also makes clear when problems emerge. If the price breaks below your entry or key support, that’s your signal to exit or cut losses. A good entry price helps clarify your exit price. And having a clear exit price is crucial for risk management.
Buying when stocks break out of bases usually carries less risk. Bases are periods when stocks move sideways and consolidate—they’re gathering energy. When they break out, the trend favors you. Momentum strengthens. Less selling pressure from above makes stocks rise more easily.
You’re not guessing; you’re reacting to market strength. This is how you improve your odds.
There are several types of base patterns. Some most common include:
Cup and handle
Flat base
Double bottom
Inverse head and shoulders
These patterns typically appear early in a new wave or trend.
When prices stall after rising, these base patterns are called continuation patterns. The most common continuation patterns are flags and triangles.
Additionally, you can manage risk. When prices break out, three things might happen:
The price continues rising
The price pulls back and retests the breakout area
The breakout fails and early buyers get trapped
Breakouts aren’t always successful. Failure rates can be high. You need to mentally prepare for frequent mistakes.
Most breakout failures occur due to weak markets, stocks not being true leaders, or large institutions selling. This is why risk management is so critical.
You must always prepare for the worst. You must limit downside risk and set a clear stop-loss point.
Accepting losses is hard—nobody likes admitting they’re wrong. But refusing to cut small losses is how small problems become big ones. Most large losses start small. They grow because people hesitate, hoping to exit at breakeven.
Remember: if the price rebounds, you can always buy back in.
Protecting your downside keeps you in the game. This is why controlling odds is so important.
One more tip: watch volume.
Breakouts on high volume are stronger and less likely to fail. High volume means large investors are buying. Large investors leave traces.
Big players can’t hide their moves. They can’t buy their entire position at once. They must accumulate gradually.
Let Winning Stocks Run
Fundamentally, investing is about profits exceeding losses. Everything else is irrelevant. This is what many investors overlook.
They think success comes from finding cheap stocks or chasing hot ones. P/E ratios, moving averages, moats, and business models are just puzzle pieces. They all help. But none guarantee success alone.
What really matters:
How much can you make when you’re right?
How much can you lose when you’re wrong?
This applies equally to day traders and long-term investors. The only real difference is timeframe. The principle is the same.
The most important lesson here is: you’ll make mistakes, and you’ll make plenty.
Investing is a probability game. Even when you think it can’t go lower because it’s cheap, or it must go up because fundamentals are improving, you still make mistakes.
A good rule of thumb: assume you’re right at most 50% of the time.
Think about Michael Jordan missing roughly half his shots. Yet he’s considered the greatest player ever. You don’t need to be right every time for substantial returns.
This happens even during good market conditions.
During poor conditions, it’s worse. Sometimes your accuracy is only 30%. This is normal.
Mistakes aren’t failures. They’re part of the process. Once you accept this, everything changes. Your focus shifts from seeking perfection to managing outcomes.
This simple table clearly shows the relationship between win rate and risk-reward ratio.
It shows that with only 30% accuracy, your wins must be more than double your losses just to break even. To truly profit, wins should be roughly triple your losses. Then your strategy works.
The goal is to incorporate failure into your strategy.
A 50% win rate sounds good but isn’t realistic long-term. Markets change. Conditions deteriorate. This is why your strategy must work even in adverse environments.
Starting with 30% accuracy and a 3:1 risk-reward ratio is a good starting point. You can adjust afterward. But if you don’t know where to start, start here.
What does this mean in practice?
Many investors think buy-and-hold means never selling. That’s only half right. You should buy-and-hold winners, not losers.
You never know how much a winning stock can rise. Sometimes 10%, sometimes 20%, rarely 100% or more. Of course, if your investment thesis fails or fundamentals or technicals worsen, you definitely want to cut losses. But let winning stocks run as long as possible.
To know when to cut losses, calculate average gains. If your average gain is roughly 30%, then to maintain a 3:1 risk-reward ratio, average losses should be around 10%.
Many ways exist to achieve this. You can adjust position sizing or sell in stages, like at -5%, -10%, and -15%. On average, if you sell one-third each time, losses stay around 10%.
The specific method doesn’t matter; the principle does. Big profits require payment in many small losses. Small losses protect you from disaster.
Cut Losses Quickly
After buying a stock, there’s really only one thing you can control: when to exit.
You can’t control how much it rises, when it rises, or even if it rises. The only real choice you have is how much loss you’re willing to accept.
Sometimes bad things happen. Companies report terrible earnings, bad news breaks, stock gaps down overnight. Even if you did everything right, you might take a hit. It’s part of the game. You can’t completely avoid it.
But holding losing stocks is dangerous. The longer you hold, the greater the potential loss. The goal is to exit early while still giving the stock normal daily volatility. Stocks rise and fall daily. You can’t sell just because of minor declines.
Yes, sometimes prices gap down, hit your stop, then bounce up. This does happen. But the last thing you want is: the price drops, you wait for the bounce to exit, but it keeps dropping.
Every massive loss starts as a small loss. And the bigger the loss, the harder it is to recover.
A 10% loss requires 11% gains to break even.
A 20% loss requires 25% gains.
A 50% loss requires 100% gains.
This is why protecting downside is so critical.
Cutting losses is hard. As long as you hold a position, there’s hope. Hope it bounces back. Hope you’re ultimately right. Hope you don’t look foolish.
Accepting losses hurts. Admitting mistakes hurts.
Research shows people need double the gains to offset losses. In other words, the pain of losses is twice the pleasure of gains.
Because as long as the position remains open, losses aren’t final. There’s still a chance to bounce back. Still a chance to prove you right. But once you sell, losses become real, mistakes become permanent. Yet you must accept losses—they’re part of the process.
Nobody is always right. Investing is always uncertain. Investing isn’t about perfection; it’s about making more than you lose over time.
The sooner you cut losses, the better. Holding losing positions usually means something went wrong—perhaps poor timing, wrong stock selection, or unfavorable market conditions.
Also, there’s opportunity cost. Capital trapped in losses can’t be used elsewhere. That capital could be deployed more effectively. Learning to cut losses quickly is one of the most important investing skills.
Related reading: Crypto Trader’s Handbook: A Quick Look at 25 Harsh Truths