Original author: Leo
Original translation: Luffy, Foresight News
The art of speculation can be boiled down to two things: how much you can make when you are right, and how much you can lose when you are wrong. Everyone looks back on those sure wins and asks why they kept their positions so light; likewise, they look back on those hesitant trades and wonder why they kept adding to their losing positions.
Position management is one of the most difficult skills to master, but improving it is the most effective lever. All top traders are constantly exploring how to improve it because once you make a mistake in judgment, the consequences can be disastrous. Although I have many shortcomings in execution, position management is one of the best things I have done in my career, and it makes up for many other mistakes I have made.
One of my favorite stories is the one told by Stanley Druckenmiller and George Soros, two of the most brilliant money managers ever, about overweighting on asymmetric opportunities.
In 1992, Druckenmiller was the lead portfolio manager at Soros' Quantum Fund. Druckenmiller noticed that the Bank of England was artificially propping up the pound and was convinced that this support could not last long. He approached Soros and explained his views to him.
“George, I’m going to sell $5.5 billion worth of British pounds tonight and buy German marks, which means we’re going to bet 100% of the fund on this one trade.”
As I was talking, he started frowning like what’s wrong with this kid, and I thought he was about to blow up my argument when he said, “That’s the most ridiculous money management method I’ve ever heard of. You’re talking about an unbelievable one-way bet.”
We should have put 200% of our money into this trade, not 100%. Do you know how often this happens? About once every 20 years. What the hell is wrong with you?
Druckenmiller eventually doubled his position in the trade, which later became one of the most famous trades in history, earning him $1 billion in a single day. Soros even earned the nickname "The Man Who Broke the Bank of England."
My most profitable trade to date was the swing trade when Coinbase and Robinhood announced the launch of $PEPE in November 2024. When executing the trade, my mind was full of this legendary story, thinking "If it were Soros, what would he do?"
Around 6am that day, I was sitting on the toilet, checking my phone, checking group chats, monitoring Twitter and watching charts as usual. I had already gone long a small amount of $PEPE because the charts looked great and my intuition told me to buy, but the position had already lost a lot of money, which made me a little anxious.
I was staring intently at the 1-minute candlestick chart on the trading app, and suddenly I saw a huge green candle rising from the ground, and I got my money back instantly. Obviously, I was a little excited but also very confused. Then I received a Twitter notification: "PEPE is listed on Robinhood." I was still skeptical whether this was true because it was so unexpected, so I checked multiple times in the group chat and Twitter. When I confirmed that the news was true, a switch in my brain was triggered, and I realized that this would be "the deal of a lifetime."
As soon as the Robinhood news was released, its price instantly soared from $0.000012 to $0.000016. The reason why this news was so eye-catching was that no other memecoin had been listed on Robinhood since $DOGE and $SHIB. In addition, PEPE had no convenient purchase channels in the United States before. Americans either bought it on the chain or through unknown exchanges. Listing on Robinhood opened the floodgates for a large amount of retail funds for PEPE, and the market quickly understood this.
Additional context: At the time, $PEPE’s all-time high (ATH) was $0.000017. One of my favorite trades is a breakout above the ATH, and I realized that people who sold at that price didn’t understand the magnitude of the news.
I bought 5x my current position at the market price, using almost 2x leverage on my entire portfolio (position size = 2x portfolio value). I looked at the USD value on the trading app and my stomach started to churn. If I had eaten breakfast, I would have thrown up. I had never thought about investing in so many altcoins, let alone meme coins, but I felt very calm because I knew it was the right choice.
About an hour after the Robinhood news, Coinbase also announced the listing of $PEPE, and the price broke the all-time high. Later that day, 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 the peak, I made a profit of about 100% in less than 12 hours. It can be said that it was a crazy day. Although I didn't close the position at the highest point, I still locked in a considerable profit, which exceeded the total profit of the past few months, which also highlights the value of adjusting positions in asymmetric opportunities.
These are stories of overweights that succeeded, but it would be a crime not to talk about the other side of it. For every story of a massive, centralized bet that succeeded, there are countless stories of people who went all in and went broke. This is exactly why investing correctly is so difficult: it’s not easy to find a balance between believing in your theory and betting big, and respecting the market.
Sometimes you are full of confidence and bet heavily, but you lose money for several consecutive days, so you decide to stop loss and leave. Miraculously, it is as if the market gods are watching your position, and the market immediately reverses after you close the position, and the price moves exactly according to your argument. Sometimes you choose to stick with it, and wake up a week later to find that your portfolio has lost 50%. Admittedly, this is a difficult skill to master.
I personally have had many experiences of heavy losses, but one thing that has always kept me going is very strict risk management. If the price action does not conform to my theory and the losses continue for a period of time, I will stop the loss. No matter how much I believe that the market is always right.
Never hang on to a losing trade, a better trade is just around the corner. There are always plenty of opportunities and trade ideas that are worth going long on, but if I lose a large portion of my portfolio, I won’t have enough exposure to execute the best opportunities.
Avoiding big losses at all costs is really the most important concept in any risk game. What a "big loss" means to you is relative. In my early days of building a smaller portfolio, I had to take on more risk. It was easy for me to 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 for my theories to work. As the portfolio size grew, the liquidity of the markets I was entering improved slightly, and I couldn't afford to risk as much. It's important to be clear about your risk tolerance so that every time you make a trade, you know exactly how much you can afford to lose. I've seen many talented and amazing traders quit the game because of a single, huge loss that they couldn't recover from.
That's why one of my favorite trading strategies is the breakout. I like the top strike because it's a clear risk trade that either wins or loses quickly. For example, I trade $PEPE when the price struggles at the top and fails to break out, or breaks out and then falls back below the ATH. In both cases I have clear exit points, so it makes perfect sense to enter a large position at this point.
Looking back at my trading career to date, all of the significant growth in my portfolio has come from "all or nothing" returns. Every year, only a few trades generate the majority of the profits. Beyond that, it's really a game of survival. You have to be sharp enough to identify those trades that will deliver big gains, but also have the self-discipline to avoid losing all your chips on an idea you lack confidence in and avoid doubling down on a losing position.
One of the big areas I'm focusing on improving in the next phase of my journey is holding positions. I'm good at taking big bets, but very bad at holding positions with large amounts of unrealized profits. This is my inner risk manager playing tricks on me, but I'll get farther if I can apply my theories more often, rather than doing them too often.
