Someone privately messaged me asking about methods for hedging and recovering from losses. Last year, I posted a detailed method, which can be summarized as: short hedges with staggered take-profits and set nearby stop-losses.
Here is a brief summary again: In a bull market cycle, the overall trend is upward, so the core strategy is to go long, with 90% of the time spent on low long positions. Sometimes, if the position is too heavy and there are no staggered take-profits, when reaching a nearby resistance level, if it quickly falls back or fails to escape the peak in time when encountering a daily level pullback, it may lead to losses. When trapped, one must learn to make T trades, which is a basic skill. There are many methods to recover from losses, but the least effective method is to be close to forced liquidation and choose to wait passively. Many people immediately choose to cut losses when facing unrealized losses, and then within a few hours, the price rebounds, leading them to chase the rise, which can easily wipe out their capital and is not suitable for futures trading. Hedging to recover from losses is a common technique, mainly applicable during short-term daily level pullbacks in an upward trend for those stuck in long positions.
Mainly grasp a few key points:
1. The position for opening a short position should be less than 1/3 of the long position, generally 1/4 of the long position is best. It mainly serves to lower the risk of forced liquidation of the long position, with profit being secondary. Once a stop-loss signal is confirmed and a rebound is imminent, the crisis for the long position is temporarily resolved. At this point, if the short position has not yet reached its target profit, it may be necessary to sacrifice this short position, as it is merely a secondary position. Therefore, the short position should ideally only occupy 1/4 of the long position.
2. The position to open a short order is very important; it should be above the central axis over the support level. For example, if SOL has support points below 106 at 103.50, 102.50, and 100.00, when the long position is stuck at 106 and the price drops to around 104, a short position can be opened, with take-profit set at 102.50. If 102.50 is broken, staggered take-profit orders should be set at 101.50, 100.00, and 98.65, while also setting limits to buy back at 100.15 and 98.65 to add to the long position. After taking profit from the short position, the remaining part should have a stop-loss set at 104.50. 100 is a strong support level; when the price approaches 100, it is no longer suitable to open a short position. After a break below, wait for the price to recover above 100 before deciding based on the situation. Do not chase shorts at low levels; if you do, set a stop-loss near the cost price. You must not open a position and leave it without setting either take-profit or stop-loss, as that is very dangerous.
3. When there is a continued trend of decline and forced liquidation is imminent, it is necessary to act decisively and manually reduce the position by 20%, then open a short position of 20% in the opposite direction. First, set a stop-loss near the resistance level, and then set staggered take-profit orders to recover losses. When the long position is in a loss but there is no risk of forced liquidation (for example, if SOL's safe distance is more than 24 points above the current price), do not open a short hedge, as this could easily lead to being stuck in both long and short positions. Then consider the essence of the problem: why is there a loss position? A significant part of the reason is due to an overly heavy position and failure to take profit in batches near resistance points. The pattern of holding positions for the medium to long term is not suitable for everyone, especially for those using high leverage with heavy positions, who can only release positions while the price rises and take profit in a timely manner. When the market has a continuation, it is also necessary to take profit in batches and add positions on pullbacks. Cultivating good trading habits and maintaining an orderly approach prevents passivity.
We must both love the market and respect it; we should pursue the goal of becoming rich overnight in the short term while also striving for substantial gains in the medium to long term. This is not easy; God will not easily let you have both fish and bear's paw. Recognize yourself, maintain a stable mindset, and learn to gradually become wealthy in order to move forward steadily and achieve lasting survival.
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