Based on Luo Sheng, Luo Sheng Trading Psychology (罗晟交易心理演变) (2022)
What the book is: A deeply personal memoir-style trading psychology book by Luo Sheng (罗晟), a cryptocurrency trader and YouTuber. The Chinese title 《交易心理演变》 translates to "The Evolution of Trading Psychology." Written in August-September 2022, it chronicles the author's psychological transformation from a reckless speculator in 2017 to a disciplined, Daoist-philosophy-informed trader by 2021-2022.
Core thesis: Trading success is not determined by intelligence, technical skill, or analytical ability. It is determined by psychological maturity — specifically, the ability to be passive, patient, and humble. The book argues that Daoist philosophy (道家思想) provides the ideal mental framework for trading: act without forcing (无为), yield rather than push (柔弱胜刚强), and wait for the market to come to you rather than chasing it.
Applicable markets: Although the author trades primarily in cryptocurrency (Bitcoin, altcoins) and forex (GBP/USD, etc.), the principles are market-agnostic. The psychological framework applies to any speculative market — stocks, futures, forex, crypto.
Structure: The book has five chapters, each representing a stage of the author's psychological evolution:
The author does not present a traditional technical trading system. Instead, he presents a philosophical operating framework rooted in Daoist thought that governs all trading decisions. The methodology can be distilled into several interlocking principles:
The single most important principle. The trader must respond only to what the market is actually doing right now, not to predictions, analysis, hopes, or fears.
On each candlestick close, compare the current candle to the previous candle:
| Condition | Classification |
|---|---|
| Current high > Previous high | Bullish trend (多头趋势) |
| Current low < Previous low | Bearish trend (空头趋势) |
| Current candle overlaps previous candle substantially | Consolidation (震荡) |
Enter only after a confirmed trend breakout, never before. Buy after an uptrend is confirmed, not in anticipation of one.
When multiple instruments are available, allocate capital to the ones showing the strongest price action.
The author's signature style: "If I can earn 10 yuan, I only take 3." This means:
The trader should be passive, not active:
Trigger:
Confirmation requirements:
Entry execution:
Trigger:
Confirmation:
Core rule: Not setting a stop-loss is the same as waiting for a margin call (爆仓). Every trade must have a defined stop.
Sell signals (for longs):
Scaling out procedure:
Critical lesson from May 2021: The author had a clear exit plan for altcoin positions in April-May 2021 but failed to execute it because he was distracted and complacent. The market dropped 50% in 10 days (BTC from 59,500 to 30,000). He estimates this failure to execute cost him a 2x on his total portfolio. After this, he committed to never deviating from the exit plan again.
After May 2021, the author adopted a new rule: once a loss occurs, on the next trade, take profit at breakeven if the price returns to the entry level, even if it means leaving profit on the table. Protect capital first.
Plan capital growth as a series of doublings:
| Doubling # | Capital | Notes |
|---|---|---|
| 0 | $10,000 | Starting capital |
| 1 | $20,000 | |
| 2 | $40,000 | |
| 3 | $80,000 | |
| ... | ... | Growth accelerates |
| 7 | $1,280,000 | 7 doublings = 128x |
| 10 | $10,240,000 | Withdraw some to bank along the way |
From the Erta Zizhi Tongjian (资治通鉴): in a game of strategy, if you are winning, continue to press carefully. If you are not winning, stop and do not escalate.
Trading is addictive precisely because outcomes are uncertain. Like the famous rat experiment: a rat presses a button that randomly delivers food. The randomness creates compulsive behavior. If the button always or never delivers food, the rat loses interest.
Implication: Acknowledge the addiction. Professional traders find trading boring (枯燥乏味). If you find it thrilling, you are still in the addiction phase.
"People only have emotions, no rationality. The market also only has emotions, no rationality."
From the Dao De Jing: "Blunt the sharpness, resolve the complications, soften the glare, merge with the dust."
From Dao De Jing Chapter 22: "少则得，多则惑" — Less leads to gain, more leads to confusion.
The author's most counterintuitive principle: deliberately choose to be "stupid."
From Dao De Jing Chapter 69: "I dare not be the host but would rather be the guest; I dare not advance an inch but would rather retreat a foot."
"交易不怕错，怕的是不认错。" — Trading does not fear mistakes; it fears refusing to admit mistakes.
"许多投资者都会把个人的观点合理化，或者把其他人的观点不合理化，根本不是从逻辑出发。"
Traders rationalize their existing positions rather than analyzing objectively. They start from a conclusion ("this will go up") and find supporting evidence, instead of starting from logic and following it to a conclusion.
In 2018, the author saw increasing numbers of buyers entering crypto while the price continued to fall. Retail buying enthusiasm was high, but institutional sellers (主力机构) controlled the dominant capital and were selling. Price is determined solely by whether Taker buy volume exceeds Taker sell volume — nothing else.
"现在回忆起来真是愚蠢，不设置止损就等于自己在等待爆仓的来临。"
Early in his career, the author refused to set stops because he viewed it as "not confident." This is backwards — not setting stops is the most reckless possible behavior.
The May 2021 altcoin episode: the author had clear sell targets, sell dates, and sell prices published on YouTube. But when the time came, he was distracted, complacent, and failed to act. A small failure to execute compounded into a massive loss.
After a stop-loss, the impulse is to immediately re-enter to "make back" the loss. This leads to a cascade of small losses that cumulatively destroy the account faster than one large loss.
"许多人的操作完全和事实逻辑相反。浮盈了马上卖掉，浮亏了就坚定持有。"
Most traders sell winning positions quickly (to lock in small profits) and hold losing positions stubbornly (hoping for recovery). The correct behavior is the exact opposite: hold winners and cut losers.
Never trade with borrowed funds or money needed for living expenses. The psychological pressure distorts all decision-making.
If you pin all hopes on a single position going 100x, you are gambling, not trading. The achievable path is a series of doublings over years.
Context: After a sharp drop in May 2021 and a summer consolidation, the author was watching for a trend reversal signal.
Phase 1 — Waiting (June-September 2021):
Phase 2 — Signal Detection (September 30, 2021):
Phase 3 — Entry:
Phase 4 — Adding to Winners:
Phase 5 — Portfolio Rotation (October 29):
Phase 6 — Exit (November 26, 2021):
Phase 7 — Result:
Post-trade:
function daily_routine(timeframe):
candle = get_latest_closed_candle(timeframe)
prev_candle = get_previous_candle(timeframe)
# Step 1: Classify market state
if candle.high > prev_candle.high:
state = BULLISH
elif candle.low < prev_candle.low:
state = BEARISH
else:
state = CONSOLIDATION
# Step 2: Determine action based on current positions
if no_open_positions():
if state == BULLISH and is_breakout(candle, lookback=20):
execute_entry(direction=LONG, size=INITIAL_FRACTION)
elif state == BEARISH and is_breakdown(candle, lookback=20):
# Only short in confirmed downtrend on lower timeframes
pass # Author primarily trades spot/long
else:
do_nothing() # Wu Wei - wait
elif holding_long_positions():
if state == BULLISH:
# Trend continuing - consider adding
if candle confirms new high AND position < max_size:
add_to_position(size=INCREMENTAL)
elif state == BEARISH:
# Potential reversal - reduce immediately
if candle.drop_magnitude > LARGE_THRESHOLD:
close_all_positions()
else:
reduce_position(fraction=0.5)
elif state == CONSOLIDATION:
hold() # Do nothing, wait for resolution
# Step 3: Portfolio rotation (if multi-asset)
review_all_positions()
for position in open_positions:
if position.floating_pnl < 0:
mark_for_review(position) # Consider cutting
if position.floating_pnl > 0 and position.is_strongest():
mark_for_addition(position)
rotate_from_losers_to_winners()
function is_valid_entry(candle, market_context):
# Rule 1: Must be a confirmed breakout
range_high = max(close for recent 20+ candles in consolidation)
if candle.close <= range_high:
return False
# Rule 2: Breakout candle must be significant
avg_range = average(candle.range for recent 20 candles)
if candle.range < 2 * avg_range:
return False # Not a decisive breakout
# Rule 3: Must be right-side (after the fact, not anticipatory)
if candle is not yet closed:
return False # Wait for close
# Rule 4: No entry during unclear conditions
if market_context.ambiguity > THRESHOLD:
return False # "多则惑" - too much complexity, stay out
return True
function check_exit(position, candle, prev_candle):
# Rule 1: Immediate exit on large adverse move
if position.direction == LONG and candle.low < prev_candle.low:
if candle.drop_pct > LARGE_DROP_THRESHOLD:
return EXIT_ALL
# Rule 2: Breakeven protection after prior loss
if recent_loss_occurred and position.pnl >= 0:
return EXIT_AT_BREAKEVEN
# Rule 3: Planned profit-taking at doubling intervals
if position.pnl_pct >= 100: # Doubled
return TAKE_PARTIAL_PROFIT # Sell 30-50%
# Rule 4: Trend exhaustion
if candle.high < prev_candle.high and position.direction == LONG:
if consecutive_lower_highs >= 2:
return EXIT_ALL
return HOLD
function pre_trade_risk_check(trade):
# Never trade borrowed money
assert trade.capital_source != BORROWED
# Never exceed maximum position size
assert trade.size <= account.balance * MAX_POSITION_PCT
# Must have defined stop-loss
assert trade.stop_loss is not None
# Reward:risk must be >= 5:1 for trend trades
reward = trade.target - trade.entry
risk = trade.entry - trade.stop_loss
assert reward / risk >= 5.0
# Never trade during consolidation
assert current_market_state != CONSOLIDATION
return APPROVED
"投机是最富有魔力的事业。" Speculation is the most magical of endeavors.
"交易是一项严谨的事业。" Trading is a serious, rigorous endeavor.
"交易是一项奖惩机制很明确且很直接的事业。" Trading is an endeavor where the reward-punishment mechanism is very clear and very direct.
"对了就是对了，错了就是错了，结果在自己的账户上，骗得了谁呢。" Right is right, wrong is wrong — the results are on your own account. Who can you fool?
"人只有情感没有理性，那么市场也只有情绪没有理性。" People only have emotions, no rationality. So the market also only has emotions, no rationality.
"如果靠理性和逻辑就一定能赚到钱，那么政治家蒋介石、科学家牛顿就不会在股市里面亏得一塌糊涂了。" If rationality and logic guaranteed profits, then politician Chiang Kai-shek and scientist Newton would not have lost so badly in the stock market.
"不要太积极，认输就不会输，不认输反而会死得很惨。" Don't be too aggressive. Accepting a loss means you don't really lose; refusing to accept a loss leads to catastrophe.
"挫其锐，解其纷，和其光，同其尘。" ——《道德经》 Blunt the sharpness, resolve the complications, soften the glare, merge with the dust. — Dao De Jing
"少则得，多则惑。" ——《道德经》第二十二章 Less leads to gain, more leads to confusion. — Dao De Jing, Chapter 22
"多言数穷，不如守中。" ——《道德经》第五章 Excessive words lead to exhaustion; better to hold the center. — Dao De Jing, Chapter 5
"持而盈之，不如其已；揣而锐之，不可长保。" ——《道德经》第九章 To hold and fill to the brim is not as good as stopping in time; an oversharpened blade cannot last. — Dao De Jing, Chapter 9
"吾不敢为主而为客，不敢进寸而退尺。" ——《道德经》第六十九章 I dare not be the host but would rather be the guest; I dare not advance an inch but would rather retreat a foot. — Dao De Jing, Chapter 69
"勇于敢则杀，勇于不敢则活。" ——《道德经》第七十三章 Those who are brave in daring will be killed; those who are brave in not daring will survive. — Dao De Jing, Chapter 73
"眼见为实是我说过最多的交易原则之一。不再心存幻想，不再预测下一步怎么走。" "See what is real" is one of my most-repeated trading principles. No more fantasies, no more predicting the next move.
"交易万万不能从观点出发，而要从逻辑出发，先有逻辑后推到出结论。" Trading must never start from an opinion. It must start from logic — first logic, then conclusions.
"现在回忆起来真是愚蠢，不设置止损就等于自己在等待爆仓的来临。" Looking back now, it was truly foolish. Not setting a stop-loss is the same as waiting for your own margin call.
"我一贯的操作风格：能赚10元我只拿走3元。" My consistent operating style: if I can earn 10 yuan, I only take 3.
"成熟的交易者宁可少赚钱、不赚钱，也会选择保护本金，不去冒险，绝不可能让自己置于可能血本无归的风险之中。" Mature traders would rather earn less or earn nothing, choosing to protect capital and avoid risk, never placing themselves in a position where they could lose everything.
"市场上涨、下跌的原因只有Taker资金量的多少，Taker买入总额大于卖出总额，价格上涨，反之下跌。不可能再有其他原因。" The only reason the market goes up or down is the amount of Taker capital. When Taker buy volume exceeds sell volume, price rises; otherwise it falls. There can be no other reason.
"越涨越买，买强不买弱，是我的主要投资原则之一。" Buy more as it rises, buy strong not weak — this is one of my main investment principles.
"谨慎选择时机是必要的，千万不能操之过急，否则会付出惨重的代价。" Careful timing is essential. Never rush, or you will pay a terrible price.
"有相当一部分投机的失败就是因为过早入场。晚些时间入场总会比早些时间入场更好。" A significant portion of speculative failures come from entering too early. Entering later is almost always better than entering earlier.
"那些真正有智慧的人只在行情好的时候才会动手。" Those who are truly wise only act when market conditions are favorable.
"切记，交易是严谨的事业，拿出你的诚心，市场自然会给予回报。" Remember: trading is a serious endeavor. Offer your sincerity, and the market will naturally reward you.
"子曰：述而不作。" Confucius said: Transmit, do not create. (The book's closing line — meaning: describe what you observe in the market, do not impose your own inventions upon it.)