Position management is one of the core skills in trading and investing, and its importance is reflected in the following aspects:

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### 1. **Control risk to avoid significant losses**
- **Single Trade Risk Limit**: By managing positions (e.g., no single trade exceeding 1%~5% of total funds), even multiple losses will not lead to significant account drawdown.
- **Avoid Liquidation**: In leveraged trading (such as futures and forex), excessive position can lead to forced liquidation due to short-term volatility. A reasonable position can increase survival probability.

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### 2. **Optimize Capital Utilization Efficiency**
- **Diversification Opportunity**: Allocate funds reasonably to different targets or strategies to avoid "putting all your eggs in one basket" while capturing more opportunities.
- **Dynamic Adjustment**: Adjust position based on market volatility (e.g., reduce position during high volatility) to balance risk and return.

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### 3. **Psychological and Emotional Stability**
- **Reduce Stress**: Trading with a light Position can lower emotional interference and avoid making irrational decisions due to fear or greed.
- **Long-term consistency**: Avoid abandoning established strategies due to short-term losses, and maintain discipline.

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### 4. **Adapt to Market Uncertainty**
- **Black Swan Protection**: Extreme events are unpredictable, and low position or diversified positions can reduce the impact of sudden risks.
- **Cost of Trial and Error**: Use a small position to test when the trend is unclear, and add to the position after confirmation to reduce the cost of trial and error.

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### 5. **The Basics of Compound Interest Effect**
- **Avoid significant capital drawdown**: A loss of 50% requires a profit of 100% to break even. Position management protects the capital and ensures sustainable compound interest.

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### Common Position Management Methods
1. **Fixed Ratio Method**: Each trade risk is fixed (e.g., 2% of total funds).
2. **Kelly Formula**: Mathematical optimization of Position (\( f^* = \frac{bp - q}{b} \), where \( b \) is the odds, and \( p \) is the probability of winning).
3. **Volatility Adjustment**: Dynamically adjust Position based on the underlying volatility (such as the ATR indicator).
4. **Pyramid/Inverted Pyramid Positioning**: Increase or decrease positions in batches after confirming the trend.

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### Summary
Position management is the "seat belt" of the trading system, determining whether one can survive and be profitable in the long term. Without good position management, even a strategy with a high win rate may fail due to a single mistake or sudden market changes. Its core is: **exchange controllable risks for sustainable returns**.