Let’s understand through an example:
You have 1 million yuan in assets and decide to use 700,000 yuan to purchase a cryptocurrency.
On the first day, the coin dropped by 1%, and you lost 7,000 yuan, but you didn't mind, believing that the price would eventually rebound.
On the second day, the coin price dropped another 3%, and you lost nearly 20,000 yuan, still firmly believing that it would go up again.
On the third day, the coin price rose by 2%, and you recovered about 10,000 yuan of your loss, feeling a bit better, thinking everything was under control.
On the fourth day, the coin price suddenly plummeted by 20%, and you lost 140,000 yuan, beginning to feel uneasy, hoping for a rebound the next day.
On the fifth day, the coin price rebounded by 5%, and you breathed a sigh of relief, feeling that there was still a pattern to trading coins.
On the sixth day, the coin price rose again by 1%, and although the increase was small, at least there was hope of breaking even, and you felt satisfied.
On the seventh day, the coin price rose by another 1%, and you began to look forward to future trends.
On the eighth day, the coin price continued to rise slowly, but you remained optimistic, believing that there would be a day to break even.
On the ninth day, the coin price suddenly plummeted by 30%, and you started to panic, doubting whether you had chosen the wrong coin.
On the tenth day, the coin price dropped by another 10%, and you felt angry and disappointed.
On the eleventh day, the coin price entered a consolidation period, and you saw someone online claiming this was a bottoming signal, believing that the market was accumulating momentum, firmly convinced that the coin price was about to rebound.
In the following week, the coin price continued to consolidate. You went online to learn more about cryptocurrencies, believing this was the 'main force accumulation phase', so you continued to hold the coin.
A month later, not only had the coin price not rebounded, but it also continued to drop by 20%. You began to feel numb, thinking it would be good if you could break even, and decided to withdraw your funds and stay away from cryptocurrencies.
But things did not go as you wished; the coin price continued to drop, and at that moment you finally understood the concept of 'stop-loss'. You struggled with inner pain, unsure whether to liquidate or continue holding.
Just then, a friend of yours told you that a new coin had surged by 200% recently and shared his 'leading strategy'. You believed it, sold the coins you held, and told yourself to wait until you earned enough money from the new coin to come back and buy in again, and hold it long-term after breaking even.
Through this process, have you understood where the root of losses in trading coins lies?
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