Recently, I had tea and chatted with a well-known figure in the crypto world. He shared his experience of losing 50K due to liquidation in just three days. He is now worth over 1 billion, all earned in the crypto space, and he shared his thoughts and insights on contract trading, hoping to help everyone!
1. Contracts are essentially just a tool. Before I started engaging with contracts, I heard various opinions; some viewed contracts as dangerous, while others saw them as a way to get rich quickly. In reality, they are just tools, and the key lies in how to use them. Typically, large funds use them for asset hedging, but many people treat them as a way to get rich (I initially had this thought too). This is a zero-sum market where for every profit, there is a corresponding loss. Adding to that, with trading platforms taking a cut and possible market manipulation by large players, retail investors find themselves in a difficult position, and saying that contracts are like a meat grinder is not an exaggeration. To survive in this field, one must master the survival rules; only the fittest will survive.
2. Always set stop-losses when opening positions (please repeat this in your mind three times).
The stop-loss range can be set between 1 to 100 points, specifically determined by the position size.
3. The so-called 'ever-profitable method.'
Set a stop-loss at the original price, first use one-tenth of your position to test the waters. If the trend judgment is correct, continue to increase your position, then take profits during a pullback. It sounds beautiful, but reality is very cruel. First, judging the trend is extremely difficult; the market mainly moves in a choppy pattern, and opportunities to catch a strong trend are rare. Also, even if the judgment is correct, continuing to increase the position raises the original entry price, and even a small pullback can trigger the original stop-loss. Frequent trades also incur substantial fees. Although one successful trade might multiply your principal many times over, doing this long-term will ultimately just serve the trading platform, as it is not sustainable unless you leave immediately after making a profit.
4. Novices often dislike setting stop-losses.
I have also gone through this phase. Once the emotion of loss aversion is magnified, it makes people trade wildly, thereby expanding risk infinitely. Once the funding chain is broken, you can only watch as you get liquidated, and often, you might not even realize it until it's too late. What started as an attempt to make a tenth of profit can lead to a total loss of principal.
5. There is a method to always profit from contracts, but it is definitely not something beginners can master.
Many people participate in contract trading to make big profits with small investments. To make big money, there are only two paths: one is to win through position size, meaning heavy investment; the other is through volatility, like large drops such as 312 or 519, or significant rises from 10K to 60K. To capture this kind of volatility, any analysis may be useless, and there is only one method: do not take profits. The best profit-taking method is not to take profits, but this is extremely counterintuitive. You might end up losing on 90 out of 100 trades, and I can’t do that either. With a small position, even if the volatility is great, you won’t make much money; with a large position, if the volatility is small, it doesn’t help and makes it easier to liquidate. Those who make big money can balance position size and volatility skillfully.
6. The market is unpredictable, just like the nature of war changes and water takes various forms.
The market will always move in the direction of least resistance. Betting on trends and guessing sizes are essentially the same. No matter how much technical analysis you learn, it may still be useless. Knowing how to read candlesticks and some basics is generally enough. Technical analysis isn't that hard; just remember this: if the trend is upward, it will continue to rise; if the trend is downward, it will continue to fall; if it has risen significantly but has only pulled back a little, it will rise even higher; if it has fallen significantly but only rebounded a bit, it will continue to fall. The larger the cycle, the more effective this rule is. Understanding these principles means mastering the core rules of technical analysis.
7. The real way to make a lot of money is definitely within a trend. Executing rolling operations in trends is fine, but if you develop the habit of trading during choppy markets with small positions, it will be very hard to hope for wealth. Short-term trading can bring quick returns, but losses can also come quickly; over time, the fees paid may exceed the profits earned. If you think you are destined to win, give it a try, but remember that losses often start with winning.
8. The timing of entry is very important. Many losses occur because of the fear of missing out.
When there is no position, during a decline, wait for a rebound before opening a short position. Remember not to chase the decline; the same goes for an uptrend—wait for a pullback before entering, and do not chase the rise. This approach may cause you to miss some strong trends, but it is generally safer. However, many people only see profits and ignore risks, ultimately blaming others for missing out.
Do not be afraid. Many people become fearful in the futures market after losing and no longer dare to open positions. When they trade again, they become timid and hesitant. Losses can lead to excessive focus on purpose, longing for results, and always thinking about making a profit while trying to avoid losses. This mindset will not lead to profitability. As the ancients said, 'Do not rejoice in gains or mourn losses.' In trading, this means: do not be joyful for profits or sorrowful for losses. When your mind is calm enough, you will achieve success. Approach trading like you did on your first day in futures, filled with enthusiasm and passion. Don’t let fear hold you back; if you’re wrong, take a loss; if right, hold on. Don’t rush to exit before the trend reverses, or you will miss out.
10. Enthusiasm.
No matter what you go through, maintain enthusiasm and passion, and cherish your aspirations for a beautiful life. Be as motivated as you were on your first job and as bold in love as when you first fell in love. Many things in life, whether in career or relationships, may not yield results—most likely, they won’t. But if you don’t put in the effort, you won’t achieve any results. Focus on doing what needs to be done and don’t overly worry about the outcome.
11. Many people are always thinking about opening positions, even fully invested. For them, being in cash is more painful than losing money.
In fact, the time for trending markets is often short; controlling pullbacks is the most critical aspect. How to control pullbacks? Staying in cash and resting is the best method. Don’t always think you have to take every market movement. Catching one or two opportunities in a year is sufficient; missing out is entirely normal, so there's no need to regret. As long as you remain in this market and endure, there will be more opportunities in the future. Time is the only chip retail investors have; maintain a calm mindset, wait patiently, and making money is just a byproduct. Enjoying life is fundamental.
12. The mindset and insights of trading.
In trading, the mindset is more important than knowledge. Knowledge is like techniques, while the mindset is the internal strength. Just like Qiao Feng can dominate several Shaolin monks with the Taizu Changquan because he has profound internal skills. Being able to see accurately doesn’t have much use; what matters is what to do after seeing correctly, and what to do after seeing incorrectly. How to maintain composure in holding positions, how to have a good mindset, how to not fear missing out, and how to not fear pullbacks... If you always hold a mindset of wanting to win and fearing loss, it will be very challenging to make money in this market. Some things new traders may not grasp immediately, but with enough time in this market, they will understand these truths.
1. If your initial capital is not very large, say under 100,000, being able to catch one large market fluctuation a day is already enough. Do not be greedy and hold positions all the time!
2. When encountering significant positive news, if you don't sell on the same day, remember to sell on the second day when it opens high. The realization of good news often turns into bad news.
3. News and holidays are also very important; when significant events occur, adjustments (reducing positions or even going cash) should be made in advance. Historically, major events have always led to significant fluctuations in the market. If you can’t predict the direction, wait for the market to come and follow the trend!
4. For medium to long-term strategies, always trade lightly, leaving enough room for operations. Steady operations are the best strategy; avoid heavy positions!
5. Short-term trading focuses on following the trend, quick entries and exits. Avoid greed and hesitation. During significant market fluctuations, look for suitable points to enter. If the market is inactive, stay in cash and wait patiently.
6. If the market fluctuates slowly, rebounds will also be slow; if the market fluctuates quickly, the corresponding pullbacks will be rapid!
7. If you enter the wrong position, promptly cut losses (do not hesitate to place orders); stop-loss is a form of profit, and preserving capital is the fundamental basis for survival in the market.
8. When trading short-term 15-minute candlestick charts, it's essential to watch them. The KDJ indicator can help better capture suitable entry points.
9. There are countless techniques and methods for trading cryptocurrencies, but the most important thing is the mindset. A person's mindset is crucial; the crypto world can easily make you feel the ups and downs. Therefore, adjust your mindset and avoid greed.
What is liquidation in Bitcoin? Liquidation refers to the threshold of being forced to close positions. In leveraged trading, due to significant market fluctuations, your leveraged account loses too much due to price drops, leading to insufficient funds to maintain the position. If you do not add margin promptly after receiving a 'liquidation warning,' the exchange may forcefully close the position to prevent greater losses.
What is clearing in Bitcoin? Simply put, it means: your money is gone in a snap.
And precisely because your account has no money left, the exchange automatically liquidates your positions to prevent you from accruing more debt. During the liquidation process, the exchange will forcibly close the investor's positions at current market prices and charge a certain 'liquidation fee.'
(Yes, if you lose your bet, you still have to pay fees beyond that.) The remaining margin (if any) will be refunded to the investor’s account. It is worth noting that during periods of significant market volatility, this is known as 'slippage.'
Clearing prices may be worse than trigger prices. Overall, cryptocurrency liquidation processes differ from stocks. In cryptocurrency, you will only lose your principal when liquidated, but in the stock market, an extreme situation could lead you to owe money to brokers, and in severe cases, you might even face breach of contract responsibilities. To reduce the risks of liquidation, you can adopt the following strategies.
1. Reasonably control leverage ratios.
All leveraged traders should remember: the higher the leverage ratio, the greater the risk of liquidation. For novice traders, it is strongly recommended to use no more than 3x leverage to avoid excessive risk amplification. For example, if your account has 1,000 USDT, using 3x leverage allows you to control a position of 3,000 USDT, which entails less risk compared to a 10x leverage position of 10,000 USDT. Earning less is fine, as long as you protect your principal.
2. Set stop-loss levels in advance.
Stop-loss is an important risk control tool to avoid liquidation. Traders can set a stop-loss price when opening a position. For example, if you long BTC at 100,000 USDT, you could set a stop-loss at 98,000 USDT (a 2% loss). If the market price drops to this level, the system will automatically close the position to limit the loss.
3. Maintain sufficient margin.
When market volatility increases, maintaining a high margin ratio can effectively reduce liquidation risks. For example, if the exchange's maintenance margin rate is 0.5%, it is recommended to prepare at least 3-5 times that amount in additional funds as a buffer. Additionally, when prices approach liquidation levels (upon receiving a liquidation notice), timely adding margin can keep account funds sufficient to lower the risk of liquidation.
4. Observe the market liquidation heatmap.
By observing the liquidation heatmap, you can see which price ranges have a large number of liquidated positions and predict potential areas of significant price fluctuations. Investors can adjust their entry and exit plans based on this data to avoid high-risk areas. For example, if the heatmap shows a large number of liquidation orders between 100,000 and 98,000 USDT, it indicates that this range may become support or resistance in the market.
5. Diversify investments to reduce risks of single positions.
Do not invest all your funds in a single position; instead, diversify across different trading pairs or reduce the leverage of a single trade. This way, even if one trade gets liquidated, you still have some funds unaffected. For example, if you have 5,000 USDT, you could allocate 2,500 USDT to BTC and 2,500 USDT to ETH to mitigate the impact of single-market volatility. It’s important to note that cryptocurrencies often experience simultaneous market declines; this strategy may not always be effective, but a reasonable allocation of altcoins and mainstream coins can help reduce risk. You can see that during this major drop, even the top five mainstream coins like ETH and SOL fell more than 30% from their highs, meaning that leverage above 3x may result in liquidation. This is also why we previously mentioned the reason for “liquidations during bull markets” in our articles on bull market prices.
6. Pay attention to market trends and major events.
Market news, macroeconomic data, policy changes, etc., will all affect Bitcoin prices. For instance, during FOMC meetings or CPI data releases, markets often experience drastic fluctuations, or approvals or rejections of ETFs and regulatory policy changes can also impact market confidence.
Investors should closely monitor these key events and adjust their positions timely to reduce the risks of liquidation due to market volatility!
While leveraged trading can amplify profits, it also magnifies risks. While encouraging everyone to avoid a gambling mentality and focus on researching projects and holding spot, if you still want to trade with leverage, understanding the mechanisms of liquidation and margin is very important. By reasonably controlling leverage, setting stop-losses, preparing sufficient margins, observing market heatmaps, and diversifying investment targets, you can effectively reduce the chances of liquidation and being forced to close positions.
If you are a novice cryptocurrency trader or are touching contracts for the first time, although the exchange's leverage limits may seem attractive, it is still advisable to start with low-leverage trading and learn to observe market trends and manage risks. Avoid massive losses caused by over-leveraging; one bad trade could lead to significant losses!
This is the trading experience that the instructor shared with everyone today. Often, your doubts can lead to missed opportunities to make money. If you don’t dare to try boldly, to engage, to understand, how can you know the pros and cons? You must take the first step to understand what to do next. A warm cup of tea and a piece of advice; I am both a teacher and your chatty friend.
Meeting is fate, and knowing is chance. The teachings firmly believe that fate will lead to acquaintance, while missing out is destiny. The journey of investment is long; momentary gains and losses are just the tip of the iceberg. Remember, even the wisest can make mistakes, while the foolish can gain from their mistakes. Regardless of emotions, time will not stop for you. Set aside your worries and stand up to move forward again.
Opportunities are reserved for those who are prepared!
Seizing opportunities is the key to success!
What are you hesitating for!
