In this session, we’re going to talk about position management. To achieve consistent and stable profits—small losses, big gains—position management is the most fundamental core.

As shown in the diagram, when we trade in the same market using the same strategy, the returns can differ by hundreds of times. The only difference is in how we manage our positions.

It’s simple: suppose we participate in a game of guessing whether the number is higher or lower. If we guess correctly, we double our bet; if we guess wrong, we lose the bet. How should we control each bet amount X to maximize our profit?

Can we really keep the money from the game? After careful thought, it’s not hard to see that the essence of making money lies in how we place our bets. Assume our position size each time is x, total profit is y, number of correct guesses is n, and number of wrong guesses is m. Then we can derive the following formula:

yᵢ₊₁ = yᵢ (1 + 2x)ⁿ (1 - x)ᵐ

Simplifying, if we assume a 50% chance of guessing correctly, then n and m can both be considered as 1, which turns into a familiar quadratic equation.

Further derivation leads to a more suitable formula for trading markets—the famous Kelly formula:

y = ∏ (1 + bᵢx)ᵖⁱ

where b is the profit rate, and p is the probability.

📌However, in actual trading, we need to face the following:
We will update how to manage positions at different trading stages based on this foundation.

I hope this article is helpful to you. When you consciously learn about position management, it’s a sign you’re officially stepping into trading. We will also periodically update small trading lessons.

✨✨✨By the way, a little benefit for my followers: the profit curve app for position management shown in Diagram 1. Contact me to get it for free, and you can use it to simulate and find the position size that best suits you. 🎉🎉🎉