In contract trading, risk control is always the top priority, while 'stable profitability' requires establishing a scientific trading system and strict execution. Given the high leverage attribute of contracts (typically 5-100 times), its essence is to earn profits by amplifying volatility, but it also means that slight adverse fluctuations can lead to significant losses of principal or even liquidation. The following unfolds from the perspectives of risk avoidance and stable profitability strategies, combining underlying logic and practical methods.

I. The Core Principle of Avoiding Risk: First protect life, then seek profit.

The risks of contract trading mainly come from three factors: leveraged amplified volatility, directional misjudgment, and emotional loss of control. The key to avoiding risk is to hedge these uncertainties through rules and discipline.

1. Position Management: Never 'all in'.

· Core Logic: Over-leveraging can lead to 'zeroing out with a single mistake.' Even with a win rate of 90%, a single 10% adverse fluctuation (such as with 10x leverage) can result in a 90% loss of principal (under 10x leverage, a 10% adverse fluctuation equals a 100% loss).

· Practical Methods:

· Control single position size to 5%-10% of total capital (not exceeding 20% in extreme cases). For example: with a principal of 100,000, the maximum single position can be 10,000 (under 10x leverage, position value is 100,000, a 10% loss means total loss of principal).

· Diversify Assets: Avoid betting on multiple assets in the same direction simultaneously (e.g., going long on both BTC and ETH) to prevent systemic risks (such as a broad decline in the cryptocurrency market).

· Dynamic Adjustment: After making profits, one can appropriately increase the position size (such as pyramid scaling), but never average down on losses (averaging down can accelerate liquidation).

2. Leverage Choice: Beginners should stay away from high leverage.

· Core Logic: The higher the leverage, the greater the risk of liquidation. High leverage (such as above 50x) is suitable for extremely short-term (minute-level) high-frequency trading, but it is difficult for ordinary investors to grasp.

· Practical Suggestions:

· Beginners should start with 1-5x leverage and try higher leverage (e.g., 10x) after becoming proficient.

· Always avoid 'full leverage' (i.e., margin ratio below the exchange's required maintenance margin ratio). For example: under 10x leverage, if the exchange requires a maintenance margin rate of 5%, forced liquidation (margin call) will occur when losses cause the margin rate to drop below 5%.

3. Strict Stop-Loss and Take-Profit: Use rules to counter human weaknesses.

· The Meaning of Stop-Loss: Limit the maximum acceptable loss to avoid 'holding positions' (due to a lucky mindset not recognizing mistakes) that lead to significant shrinkage of principal.

· The Meaning of Take-Profit: Lock in profits and avoid 'greed' leading to profit reversals (especially in a volatile market).

· Specific Setting Methods:

· Stop-Loss:

· Technical Stop-Loss: Set based on support/resistance levels, trendlines, and patterns (e.g., head and shoulders neckline). For example: when going long, set the stop-loss below the most recent strong support level (e.g., previous low -2%).

· Fixed Percentage Stop-Loss: Single trade losses should not exceed 1%-2% of principal (adjust positions according to different leverage). For example: under 10x leverage, if allowing a 2% loss of principal, the stop-loss space is 2%/10=0.2% (i.e., a 0.2% adverse price movement triggers the stop-loss).

· Volatility Stop-Loss: Use the ATR (Average True Range) indicator, setting the stop-loss at 1.5-2 times the recent ATR to adapt to market volatility changes.

· Take-Profit:

· Target Take-Profit: Set according to technical resistance levels (such as previous highs, Fibonacci extension levels), or round numbers (such as BTC at $100,000).

· Dynamic Take-Profit (Trailing Stop-Loss): After price increases, gradually raise the stop-loss level (e.g., for every 2% increase, raise the stop-loss by 1%) to lock in partial profits.

· Partial Take-Profit: After profits reach the target, first close half of the position to lock in profits, and hold the remaining position for higher returns (this should be judged in conjunction with market trends).

4. Market Analysis and Direction Judgment: Reduce the probability of misjudgment.

· Technical Analysis (suitable for short-term trading):

· Trend Judgment: Use moving averages (e.g., MA20/60), trend lines, MACD, and other indicators to confirm whether the current trend is bullish or bearish. Only engage in 'trend-following trades' (i.e., only go long in an uptrend and only short in a downtrend), as counter-trend trades have a very low win rate.

· Key Positions: Pay attention to support levels (areas of concentrated buying), resistance levels (areas of concentrated selling), and breakout levels (trend continuation signals). For example: after the price breaks through a long-term resistance level, a new wave of upward movement may begin, allowing for a long position.

· Fundamental Analysis (suitable for medium to long-term trading):

· Macroeconomic Environment: Such as the Federal Reserve's interest rate hike cycle (bearish for risk assets), geopolitical conflicts (increased demand for safe-haven assets like BTC), regulatory policies (e.g., a country banning cryptocurrency trading).

· The intrinsic logic of the underlying asset: such as the fundamentals of blockchain projects (on-chain transaction volume, staking rate, developer activity), the 'narratives' of cryptocurrencies (like DeFi, NFT, Layer2, etc.).

· Sentiment Indicators: Market greed/fear index (e.g., Crypto Fear & Greed Index), exchange funding rates (positive rates indicate overbought longs and potential pullback; negative rates indicate oversold shorts and potential rebound).

5. Emotions and Discipline: Avoid 'human errors'.

· Common Emotional Traps: Greed (blindly increasing positions after profits), Fear (panic selling after losses), Revenge Trading (hastily trying to recover losses by opening random positions).

· Solutions:

· Pre-Establish Trading Plans: Including entry logic, position size, stop-loss, and take-profit levels; execute only according to the plan during trading to avoid last-minute decisions.

· Pause Trading: After 2-3 consecutive losses, take a mandatory break for 1-2 days to avoid emotional trading.

· Record Trading Logs: Review the gains and losses of each trade, summarizing error patterns (such as frequent counter-trend trades and not stopping losses).

II. The Underlying Logic of Stable Profitability: Build a Replicable Trading System.

The core of 'stable profitability' is not predicting the market but achieving long-term positive expected value through probability advantage + risk-reward ratio. The following is a validated strategy framework:

1. Trend Following Strategy (suitable for medium to long-term).

· Logic: The market has 'trend inertia' (high probability of continuation in an uptrend, continuation in a downtrend), and profits can be obtained by capturing trends.

· Practical Steps:

1. Confirm the Trend: Use moving averages (e.g., MA60 upwards indicates a bullish trend), MACD golden cross/dead cross, and progressively higher/lower highs and lows to confirm.

2. Wait for Entry Signals: After confirming the trend, wait for the price to pull back to the support level (in a bullish trend) or rebound to the resistance level (in a bearish trend) to enter (i.e., 'trend-following pullback').

3. Stop-Loss and Take-Profit: Set stop-loss at key positions where the trend reverses (e.g., in a bullish trend, stop-loss below the previous low); set take-profit at the next resistance level or trend line break.

2. Hedging Strategy (reduce position risk).

· Logic: When holding spot, hedge downward price risk by shorting contracts; or when holding short contracts, buy spot to hedge against upward risk.

· Practical Operation: For example, if holding 1 BTC spot (worth $30,000) and worried about a decline, one could short 0.5 BTC contracts (5x leverage, nominal value of $15,000). If BTC drops by 10%, the spot loses $3,000, but the contract gains ($15,000×10%×5=$7,500), resulting in a net profit of $4,500 (not fully hedged but reduces overall risk).

3. High-Frequency Strategies (suitable for professional traders).

· Logic: Accumulate profits by capturing small fluctuations (e.g., a 0.1% price difference in one minute), relying on high win rates and low fees.

· Practical Operation: Requires programmatic trading (manual execution is difficult), common strategies include market-making strategies (placing orders at buy/sell prices to earn the spread), and momentum strategies (quickly entering and exiting following short-term trends).

· Risks: Must deal with slippage (actual transaction price deviating from expectations) and exchange restrictions (e.g., withdrawal limits, fee adjustments).

III. Key Reminders: The Premise of 'Stable Profitability'.

1. There is no 'Holy Grail' strategy: Any strategy has a period of failure (for example, trend-following strategies may frequently stop-loss in a sideways market), and adjustments must be made according to market conditions.

2. Continuous Learning and Testing: Regularly review trading records and optimize strategies (such as adjusting stop-loss ratios and changing indicator parameters); use a demo account to test new strategies (for at least 1 month), then verify with a small amount of real capital.

3. Accept 'Imperfection': In contract trading, a win rate of 70% is already excellent, but it is crucial to ensure that the profit when winning exceeds the loss when losing (i.e., risk-reward ratio > 1:2). For example: in 10 trades, 7 lose 100 yuan, and 3 earn 300 yuan, total profit = 3×300 - 7×100 = 200 yuan.

Summary

The core of contract trading is controlling risk through rules and achieving profits through probability. Beginners should start with 'light positions + low leverage + strict stop-losses', gradually building their trading system; mature traders should achieve long-term stable returns under probability advantage through market analysis, strategy optimization, and disciplined execution. Remember: surviving is more important than short-term windfall profits.