In the trend trading circle, there is a saying: "The market has no highest, only higher; no lowest, only lower."

I didn't understand this statement deeply in my early years. After suffering severe losses, I conducted extensive reviews. As decades or even centuries of market trends unfolded before my eyes, I realized that my subjective judgments of market tops and bottoms were really unreliable, and I gained a deeper understanding of the unpredictability of trends.

Trend trading uses a passive profit-taking exit strategy, which stems from the unpredictability of trends. After entering a position, we do not know how long the trend will last or how much space it will cover. Therefore, we need to establish a criterion to confirm that the trend is about to reverse, then hold the position and wait for the signal that the trend is ending to take profits passively.

The most famous example of passive profit-taking is the method described in "The Turtle Trading Rules," which uses a passive profit-taking approach.

There are a few more issues about passive profit-taking in trend trading that I would like to discuss with everyone.

1. Trends have uniqueness.

Why do I mention this? Because many people in trend trading pursue perfection, wanting to capture the entire market move from start to finish.

Although many traders engage in trend trading, in fact, each person has their own criteria for defining trends. Each trader has different time frames for trading, different methods for confirming the start and reversal of trends, and different entry and exit points for orders. Therefore, each trader's trend has uniqueness.

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Successful trend trading does not mean that one must hold onto the profits of the entire market move from the chart, but rather holding onto the profits of the trend segment that one has defined.

Being able to earn the money one should is a rare master in trading.2. There is no perfect method for passive profit-taking; all passive profit-taking will result in some profit giving back.

The most troubling issue for traders when using passive profit-taking is the giving back of profits when closing positions. However, any method of passive profit-taking will inevitably lead to some profit giving back, as this is determined by the fundamental logic of passive profit-taking.

When we implement passive profit-taking, the criterion for closing a position is when the market has shown a reversal signal in the opposite direction. The market must have moved some distance in the opposite direction before a reversal signal can be generated, hence passive profit-taking will always involve some profit giving back.

Additionally, please consider this: if you want to close a position at the peak, it must be because you have seen the peak and decided to take profits actively, rather than passively.

The very term "passive" dictates that profit giving back is inevitable and must be accepted; there is no other way around it.

3. Briefly explain a method of passive profit-taking.

Moving averages are trend-indicating indicators that are also used for passive profit-taking in trend trading.

For example, in a trend trade position, one would hold until a moving average shows a cross in the opposite direction, confirming a trend reversal, and then the position is passively taken profit and closed. See the following illustration for reference.

The illustration shows a random segment of market movement that I have selected on the chart. In trend trading, one would hold the position until a cross in the opposite direction occurs on the moving averages, and then close the position. The chart uses two moving averages, EMA10 and EMA20. Since the parameters for both moving averages are relatively small, they generate reversal signals quickly, which is characteristic of a more aggressive passive profit-taking moving average parameter.4. The passive profit-taking method is relatively difficult to execute and should be used with caution.

This is very important.

The passive profit-taking trading method can lead to consecutive stop losses or significant profit giving back during a volatile market. This is because the space within a volatile market is inherently small, and the profits generated by orders are also minimal. Passive profit-taking requires the market to show a reversal before closing the position.

For example, holding a long position at a 1-minute level with a profit of 30 points, when the market starts to move in the opposite direction and confirms a bearish trend, the profits can be significantly given back, or the order may even be in a loss.

In a continuous volatile market, the ongoing stop losses and profit giving back can severely impact a trader's patience and confidence. Psychologically, this can lead to issues, causing traders to act impulsively, much like irrational gamblers, which can then result in severe losses.

There are two key points to consider when engaging in passive profit-taking trades:

1: It is essential to operate with a low position size, so that when faced with uncooperative market conditions, the overall loss is relatively small, which helps us maintain our mindset.

2: Trend traders who use passive profit-taking must have a strong inner resolve. The psychological requirements for exiting a position with passive profit-taking in trend trading are higher than those for short-term and swing trades.