Fluctuations and trends are like a pair of lovers who are both fond of and lethal to each other; all market movements are composed of these two types of trends, which coexist but do not blend, much like our day and night.

Trend-based trading strategies are bound to suffer losses in a range-bound market, and range-bound strategies are also ill-suited for trending markets. This situation can be quite vexing, leading some to wonder: is it possible to design two sets of trading strategies to cope with different market conditions, as long as there is an effective way to identify trends and fluctuations, one could capture all market movements and profits?

While the idea sounds quite appealing, I believe many people have had such thoughts, including myself in the past.

Today, I will first discuss the relationship between fluctuations and trends, and then talk about how to handle range-bound markets when trading with a trend-following strategy.

1. Fluctuations and trends can never be separated.

Many trend-following traders might think, wouldn't it be great if there were no fluctuations in the world?

This notion is akin to a child saying, wouldn't it be wonderful if there were no nights, so I wouldn't have to sleep and could keep playing indefinitely. If the financial market only had trends and no fluctuations, then everyone could make money, and there would be no zero-sum game; the entire financial market would cease to exist.

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Let's consider another perspective: most trend-following traders find it hard to endure range-bound markets, feeling immense psychological pressure, and often cannot withstand the test, resulting in losses. At such times, a minority of traders can maintain a steady mindset, patiently waiting for the dawn, and ultimately waiting for the arrival of a trending market to make a profit.

So, when your thoughts go against the nature of the financial market, it is difficult to make a profit, and with an unstable mindset, it is also hard to achieve profitability. Behind the financial market lies the game of human nature; only with the correct understanding is there a possibility of making a profit.

2. Two methods for handling fluctuations in trend-following trading.

(The translation ends here as the original text also ends at this point.)The first method: Reduce the position size of the trading system to withstand the losses during the market fluctuation period and welcome profits.

Fluctuating markets pose the greatest threat to trend trading because they can cause significant losses in the account, leading to psychological issues for traders, which in turn can distort their trading and result in further losses. Therefore, as long as the losses during the fluctuating market can be controlled, traders can maintain a stable mindset, maintain their execution, and ultimately achieve profits. Reducing the position size is the most effective way to reduce losses.

Enter the market after the moving averages cross and exit using a trend-following trading method. In the chart, the first six trading opportunities were all incorrect. Finally, in the blue circle, after the cross, the market trend developed significantly.

If you trade with a fixed stop-loss amount, assuming a position size of 3% per trade, and you have six trades with stop losses, your account would retract by 18%. At this point, the psychological pressure on the trader is quite significant, and they might start to distort their trading. Reducing the position size to 1% per trade, with six trades and stop losses, the account would retract by 6%. This kind of retraction is relatively mild and more acceptable.

After a 18% loss, it might be psychologically challenging to hold on, and you may start to doubt yourself and the profitability of your trading system. Once you give up or trade blindly, you are very likely to miss the subsequent major trend.

However, if the retraction is only 6%, the likelihood of persisting is high. Although the position size is lower, the subsequent profits will also be reduced, but making money within your psychological tolerance is the most important. Otherwise, no matter how large the position or how much profit, it is irrelevant to you because you cannot execute it.

Many friends have told me that they can do well with a light position, but their hands shake when they go heavy, which is the principle behind it. Heavy position losses still stem from one word: "greed."

So, reducing the position size, controlling the losses during fluctuations, ensuring the execution of trades, and when the trend comes, you can achieve a great victory.

Method 2: Filter trading signals to reduce retraction during fluctuations and ensure a stable mindset.Incorporating trend-based trading systems with selective filtering criteria can help conduct trades more judiciously, reduce drawdowns during volatile market conditions, maintain a stable trading mentality, and ensure execution discipline.

The trading method is the same as in the first chart, which is to enter the market after the moving averages cross and exit with the trend. When trading this segment, analyze the larger time frame. At the 4-hour level, the market tested the significant support level of 1616 three consecutive times, indicating a high probability of an upward move. At this point, only bullish trading signals are selected in the trades. In the red circle of the chart, the first three trades were stopped out, and the fourth, in the blue circle, was a bullish trade. The market moved up, and a trend was unleashed.

After filtering through the larger time frame, what was originally six consecutive stop-outs became three consecutive stop-outs, reducing the overall drawdown and making it easier to maintain a stable mindset, thus weathering the volatile market and welcoming profits.

Regarding the filtering of trading signals, I would like to remind everyone that any filtering method is a double-edged sword. It can filter out incorrect trading signals but may also filter out correct trading opportunities. It is essential to backtest and verify the filtering methods to ensure their effectiveness before implementation.

As the old adage goes, "Profit and loss come from the same source." Any trading system will have periods of loss, which cannot be avoided. What can be done is to control the losses during the losing period, maintain a good mentality, and seize the profits during the winning period. This is how trading can potentially achieve overall profitability.