"We should invest 200% of our funds into this trade, not 100%."
Written by: Leo
Translated by: Luffy, Foresight News
The art of speculation can be boiled down to two points: how much you can earn when you're right, and how much you can lose when you're wrong. Everyone looks back on trades they were certain would be big wins and questions why their position was so light; similarly, they also look back on hesitant trades and wonder why they kept adding to losing positions.
Position management is one of the most difficult skills to master, but improving this ability is the most effective leverage. All top traders are constantly exploring how to improve it, because the consequences of misjudgment can be unimaginable. Although I have many shortcomings in execution, position management is one of the best things I've done in my career, and it has made up for many of my other mistakes.
One of my favorite stories is about "decisively adding to asymmetric opportunities" told by Stanley Druckenmiller and George Soros, who are the most outstanding fund managers.
In 1992, Druckenmiller served as the chief portfolio manager at Soros's Quantum Fund. Druckenmiller noticed that the Bank of England was artificially supporting the pound and firmly believed this support could not last long. He found Soros and explained his view.
"George, I'm going to sell 5.5 billion dollars worth of pounds tonight and buy German marks, which means we'll bet 100% of the fund's funds on this trade."
As I was speaking, he started frowning, as if something was wrong with this kid. I thought he was about to refute my argument, but he said: "This is the most absurd fund management method I've ever heard. What you're talking about is an incredibly one-sided bet."
We should invest 200% of our funds into this trade, not 100%. Do you know how often something like this happens? Probably once every 20 years. What's wrong with you?
Druckenmiller ultimately executed the trade with a double position, which later became one of the most famous trades in history, with a single-day profit of 1 billion dollars. Soros even earned the nickname "the man who broke the Bank of England".
My most profitable trade was the swing trading of $PEPE when Coinbase and Robinhood announced its listing in November 2024. When executing the trade, I had this legendary story in my mind, thinking "what would Soros do".
Around 6 AM, I was sitting on the toilet as usual, browsing group chat messages, monitoring Twitter trends, and observing charts. I had already taken a small long position on $PEPE because the chart looked great and my intuition told me to buy, but the position had already suffered significant losses, making me anxious.
I was focused on the 1-minute candlestick chart on the trading app when suddenly a huge green candle shot up, and I instantly recovered my position. I was obviously excited but also very confused, then received a Twitter notification: "PEPE is listed on Robinhood." I was still skeptical about whether this was true news as it was so unexpected, so I verified it in group chats and on Twitter. When I confirmed the news was true, a switch was flipped in my mind, and I realized this would be "that once-in-a-lifetime trade".
When the Robinhood news was released, its price instantly jumped from $0.000012 to $0.000016. This news was so eye-catching because Robinhood hadn't listed any other altcoin since $DOGE and $SHIB. Moreover, PEPE previously had no convenient purchase channels in the US, with Americans either buying it on-chain or through obscure exchanges. The Robinhood listing opened the floodgates for massive retail funds, and the market quickly understood this.
Additional background: At the time, $PEPE's all-time high (ATH) was $0.000017. One of my favorite trades is breaking the historical high, and I realized that those selling at this price point didn't understand the significance of this news.
I bought at market price with 5 times my current position, using almost 2 times the leverage of my entire investment portfolio (position size = 2 times the portfolio value). I looked at the dollar value on the trading app and felt my stomach churn - if I had eaten breakfast, I would definitely have thrown up. I never thought I would invest so much in altcoins, let alone meme coins, but I was incredibly calm inside because I knew this was the right choice.
About an hour after the Robinhood news, Coinbase also announced the listing of $PEPE, breaking through the historical high. Later that evening, Upbit listed $PEPE, pushing the price to $0.0000255. I didn't even dare to look at the trading app because the profit and loss fluctuations were too large and would affect my mood. At its peak, I profited about 100% in less than 12 hours. It was a crazy day. Although I didn't close my position at the highest point, I still locked in considerable gains, exceeding the total profits of the past few months, which highlights the value of adjusting positions in asymmetric opportunities.
These are stories of successful over-positioning, but it would be a crime not to discuss the other side. Behind every story of a successful large-scale concentrated bet, there are countless stories of people going all-in and ultimately going bankrupt. This is precisely why correct investing is so difficult: finding a balance between believing in your theory, making bold bets, and respecting the market is not easy.
Sometimes you're confident and heavily positioned, yet suffer losses for several consecutive days, so you decide to cut losses and exit. Miraculously, it's as if the market god is watching your position - right after you close, the trend immediately reverses, and the price moves exactly according to your argument. Other times, you choose to persist and wake up a week later to find your portfolio has lost 50%. It's undeniably a skill that is difficult to master.
I've had many experiences of failed heavy positions, but one thing has always kept me going: very strict risk management. If the price movement doesn't align with my theory and losses continue for a while, I will cut losses. No matter how much I believe, the market is always right.
Never be reluctant to let go of losing trades; better trades are just around the corner. There will always be plenty of opportunities and trade ideas worth going heavy on, but if I lose a significant portion of my portfolio, I won't have enough position to execute the best opportunities.
Avoiding major losses at all costs is indeed the most important concept in any risk game. What constitutes "major losses" is relative to you. In the early stages of building a smaller portfolio, I had to take on greater risks. I could easily bet 10-15% of my portfolio on high-conviction trades because that was the nature of the market I was in. Everything on-chain was extremely illiquid and volatile, so I had to accept larger drawdowns to validate my theory. As my portfolio grew, the market liquidity I entered slightly improved, and I could no longer afford such large risks. It's crucial to be clear about your risk tolerance so that each time you trade, you know exactly how much loss you can bear. I've seen many talented, amazing traders exit the game due to an irreversible massive loss.
This is why one of my favorite trading strategies is breakout. I like top impact because it is a trade with clear risk, either profitable or quickly invalidated. For example, my timing for trading $PEPE is when the price struggles at the highest level but fails to break through, or breaks through and then falls back below the ATH. In both cases, I have clear exit points, so it is very reasonable to build a large position at this point.
Looking back on my trading career so far, all significant growth in my portfolio has come from "all-in" returns. Each year, only a few trades create most of the profits. Beyond that, it is really a survival game. You must stay sharp enough to identify trades that can bring huge returns, but also be disciplined to avoid losing all chips on ideas lacking confidence and avoid doubling down on losing positions.
In the next stage of my life journey, one major area I focus on improving is holding positions. I am good at heavy betting, but very poor at holding positions with large unrealized profits. This is my internal risk management consciousness at work, but if I could apply my theory more often instead of frequent operations, I would go further.
