《The Complete and Refined Version of How to Unwind a Position》

How to unwind a position? First, you need to understand how the position was created and how it became trapped.
First: The wrong direction was taken, chasing gains and cutting losses in the wrong way. When the price is near the upper band, reduce long positions to protect capital and raise the stop-loss, which is also a good time to start trying to enter short positions. When a certain coin is stuck at a level where it cannot move up, i.e., at a resistance level, attempt to open a short position. At this point, you should reduce long positions or exit, rather than chasing the rally. The opposite applies as well; a sharp decline means reversing the previous approach. All these are signs of taking the wrong direction.
Second: Poor position management. Position management is very important, second only to correct market direction judgment.
If the initial position is heavily weighted, subsequent replenishments will be difficult, and over time, positions will become heavier and heavier, ultimately leading to one outcome—liquidation.
The correct strategy should be: label the first entry with 1U, then enter lightly on the second entry, and use a normal position size for the third entry. Do not over-leverage.
Over-leverage results in an inability to add to positions, so ensure there is enough room above the current resistance level for adding positions.
Third reason: Greed.
If profits are not taken, floating gains are just illusions. Unrealized gains are just floating clouds; unrealized profits are not real gains, just a temporary hold, a glance at what could be.
After setting a stop-loss to protect capital, the position remains profitable and will not generate floating losses.
Fourth: Not strictly following your trading strategy.
Failing to attempt entries when conditions are right, leading to missed opportunities.
Over-leveraging when it should be light, and chasing rallies or cutting losses impulsively. These factors combined will result in being trapped and unable to unwind temporarily.
Therefore, strictly following your trading plan can also help avoid being trapped.
These four reasons, combined, lead to being caught.
Summary:
1. Chasing gains and cutting losses in the wrong direction.
2. Poor position management, heavy initial position, and inability to add later.
3. Greed, turning floating profits into floating losses, and repeating the previous two mistakes.
4. Having a plan but not strictly executing your trading strategy.
How to unwind:
1. Exit near the entry price (exceeding or close to the entry price) or when slightly profitable (the optimal solution).
2. When the market direction was correct but you missed the opportunity to monitor the market timely, leading to a trapped position.
(1) For heavily leveraged positions, refer to the first point: do not add to the position. If a long position is trapped, approach the next level of resistance, and strictly execute one operation—reduce the position or just run away. Admit the mistake and treat it as a lesson.
(2) For lightly leveraged positions, there are two scenarios:
- First, run near the resistance level repeatedly.
- Second, miss the opportunity to reduce the position at the current resistance, then add three times the position at the lower band to average down. After that, exit when slightly profitable near the entry price. No matter how much profit accumulates later, do not be greedy.
A particularly important note: profits can be left uncut to aim for better positions, but a stop-loss to protect capital must be set. The goal is to avoid losses, not necessarily to make profits.
Based on analysis, what is the best solution to unwind?
1. For poorly positioned trades, slightly profit near the entry price (wait for a dip, which is guaranteed to happen), then close the position and exit to regain freedom. It’s also acceptable to exit with a small loss; the goal is to preserve the principal. Capital preservation is more important than profit.
In fact, when opening a position, the first consideration is not how much you can earn, but how much loss you can accept. First, consider acceptable losses, then capital preservation, and finally profit. (Prioritizing capital preservation over profit.) Of course, the premise is to dare to try and make mistakes. Without trying, there is no subsequent opportunity. No losses, no profits.
2. Any lightly leveraged position can be topped up at key levels, tripling the position to average down, then slightly profit or exit near the entry price, or just run away.
3. An unconventional but possible solution: increase margin, average down at key levels, then repeat the optimal solution—run near the entry price.
Another point: there is never a perfect position, only relatively good ones. There is no best, only relatively good. Dare to try lightly and make mistakes; only then can there be future opportunities. Without trying, there is nothing.
4. Extreme case unwinding strategy: if about to be liquidated, what to do? Quickly lock the position to preserve capital.
Open a hedge in the opposite direction: open a position with 50% of the margin in the opposite direction, and set a stop-loss to protect capital after profits are realized, preventing floating losses and needing to unwind again.
Important notes:
1. When hedging and locking positions, do not set any stop-loss or take-profit orders, as the system will automatically execute these, potentially causing liquidation. Manual unwinding is the only option.
2. Do not place too many orders; limit to 1-2 orders.
3. Try to focus on only one coin to prevent liquidation in extreme market conditions.