The so-called trend-following trading method primarily refers to a trading model that suggests entering the market in a timely manner when the price of an investment product breaks through important resistance levels, and a significant trend arrives. This trend-following trading method is highly favored by investors and is currently a popular entry mode. So, what are the strategies to deal with drawdowns encountered in practical trend-following trading?

1. Controlling Drawdowns

a) Trading with the Trend

The market's movement is always disordered, but after each period of disorder, there must be a choice of direction. Investors recognize the trend as the king, but they also want to predict the trend in advance. In reality, the market itself does not know where the trend is during its movement. It only forms after reaching a critical point. When the trend comes, we should not hesitate and catch this train.

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b) Light Position Sizing

The behavior of light position sizing and the leverage effect of trading always make people doubt that it is a contradictory combination. It seems that not trading with a heavy position is not worthy of this game. In the market, there are also a large number of retail investors who have quickly achieved a big explosion of wealth through the method of full position, so retail investors are extremely eager for such a myth, and ignore the precarious risks behind the sudden wealth.

Light position sizing = slow + small + steady. How many people can stand the twists and turns of these points in this market, and such operations may not necessarily give you a good feedback in a short period of time.

c) Ability to Think Independently

In the past, the trading market lacked information, so the advantage of information asymmetry could help you make a profit. Now, the market is flooded with information, so information screening has become a hard indicator of our trading ability.

Have you ever encountered a situation where your position is opposite to that of the master in your circle of friends and you have closed a profitable order? Have you ever encountered a floating loss order that triggered the stop-loss condition, but you were unwilling to execute it because of the so-called bullish news? Have you ever encountered external fluctuations and insisted on the linkage effect of the domestic market? Such information is filled with our market, making it difficult for us to have an independent mindset to objectively view the positions in our hands. Independent thinking is a cultivation of ability, and it is not that fast, but first, we must have this consciousness.II. Trend Traders' Drawdown Management Strategies

Drawdowns in trend trading will inevitably occur during consolidations, and consolidations can be divided into adjustments and reversals. There are four strategies for dealing with this.

Strategy 1: Treat All Oscillatory Adjustments as Reversals

As soon as an adjustment occurs, close the position and step out to observe. Unless there is a new signal that proves the continuation of the trend, do not re-enter the market.

The advantage of this approach is that it is relatively relaxed throughout the period of drawdown and consolidation, as there is no participation. The disadvantage is that due to frequent exits and re-entries, some profits may be missed.

Strategy 2: Treat All Oscillatory Adjustments as Pullbacks Until Finally Defined as a Reversal

Once an adjustment begins, hold the position without taking action, unless a clear trend reversal signal is given. Otherwise, do not exit the market, nor take an opposing position.

The advantage is that there is minimal loss during the process. Although there will be drawdowns, they can all be recovered in the end.

The disadvantage is that when the last real reversal occurs, the loss given back is quite significant, especially if a V-shaped reversal is encountered.Strategy 3: Once the market enters a consolidation phase, regardless of whether this consolidation is ultimately proven to be just a correction or a transitional stage to a reversal, reduce positions. After reducing positions, if the market continues to rise, add positions again; if it continues to fall, then close the position.

If the trend continues, Strategy 3 will have a smaller drawdown than Strategy 1, and the profit loss will also be less. If the trend reverses, Strategy 3 can retain more floating profits compared to Strategy 2, and the amount of profit given back will be less.

Strategy 4: The strategy of making big money but also losing big money with big ups and downs.

Firmly believe that the trend can be very large, as long as the correction provides an opportunity, add positions, and add positions desperately! Hold on, hold on!

As for which method is better, everyone's answer in their heart is different. You have to ask yourself which one is more suitable and what kind of maximum loss you can bear.