Let’s talk about something heartfelt today. Have you noticed that in the crypto space, 8.5 out of every 10 people are losing money when trading contracts? Don’t rush to refute this; first, see if these scenarios feel familiar:
First act.
: Seeing a certain coin suddenly skyrocket, FOMO kicks in, and without hesitation, you invest everything, only to buy at the highest point, and the next day it halves.
Second act: Setting a stop-loss and then impulsively canceling it, thinking 'I'll just hold on a bit longer,' only to end up losing even more, ultimately forced to cut losses with tears.
Third act: After finally making a 20% profit, you rush to leave, only to see that the coin later increased by 300%, and you kick yourself.
Don't ask me how I know this; these are lessons I learned with real money. Today, I want to share with you how to avoid becoming a victim.
1. The truth that 90% of people lose money.
1. Cognitive bias: treating the crypto space like a casino and contracts like lottery tickets.
2. Behavioral traps: Stop-losses are like decorations, holding onto losing positions is a belief, and taking profits quickly.
Capital management: Don't go all in at once; profits should never be withdrawn.
Two, three magic tricks to defy fate.
Treasure 1: The ability to choose coins with a discerning eye.
The top 100 by market cap is the baseline (check CoinMarketCap at any time).
If you want to trade new coins, trade them in the first three months (after that, it's likely to cool down).
Focus on the following: ✅ Is the GitHub code updated frequently? ✅ Is the daily trading volume sufficient at 50 million dollars? ✅ Are the backers strong?
Treasure 2: K-line martial arts secrets.
A must-learn course for beginners: 📚 (Japanese candlestick charting techniques) (Don't laugh, it's really useful) 📚 Volume analysis (volume is more important than price).
Advanced skills:
🌊 Wave Theory 🔢 TD Sequence
The third key ability, which is crucial and one I've learned through countless liquidations over the years, is time-space management. This refers to managing your trading time and operational space. If you don't do this well, even if the first two points are done well, you will still incur long-term losses and significant losses. How to manage this specifically? First, you need a scientific and objective trading system or trading plan. It must be scientific and objective to be reasonable. We often come across videos on platforms like YouTube or Douyin that say, 'Turn 10u into 1 million u,' or 'How many times did I multiply my investment?' These ideas should be minimized, and such videos should be watched and listened to less.
This kind of anxiety-selling and illusion-spreading is a scam; if you believe it, you're just being cut down like a vegetable. My evaluation is that it's better to believe I'm the Emperor Qin Shi Huang. Of course, I'm not saying it doesn't exist; in the crypto space, anything is possible. But we are all ordinary people, and the odds of such things happening to us are very slim. You came to this circle to make money, not to gamble.
Assuming you have 30,000 yuan ready to invest in cryptocurrency contracts, then use 20,000 yuan as off-exchange funds and do not move it for the time being. Use 10,000 yuan as on-exchange funds for direct trading, meaning the total contract funds are currently 10,000 yuan, which is approximately 1428u at the current exchange rate. Here, we will use the Kelly formula.
Based on the Kelly formula, we can draw two conclusions.
First, the maximum position should not exceed the total funds.
Second, do not use more than 1/10 of the total funds in a single trade. On contracts, this means using 1/10 of the account funds for a single contract, and the maximum leverage should not exceed ten times. We typically have two types of contracts.
One option is to trade mainstream coins like Bitcoin and Ethereum.
Mainstream coins tend to be slightly more stable, with less volatility, making them easier to grasp. However, the probability of making big money with small amounts of money in the short term is relatively low. In contrast, altcoins experience wild fluctuations, which can be hard to manage; surging two to three times in a day feels like playing, and dropping two to three times or even getting delisted feels the same. But it's precisely because of this volatility that altcoins are popular, as they provide opportunities for quick wealth.
Let’s take altcoins as an example. When opening a position of 1/10, the maximum leverage should not exceed 10X.
Now let's calculate using the maximum leverage. After opening a position on a contract, the position is 1428u - 10x10 = 1428u; the actual contract position you open is 1428u. The stop-loss is usually set at 5% of your entry position. For example, if I choose to enter when a coin's price is 1u, I will set my stop-loss at 0.95u. We always have a profit-loss ratio in contracts, and the ratio should be at least 1 or greater before choosing to open a position. This means you should have at least a 5% stop-loss to match a 5% profit increase for it to be a suitable trade (in this case, increasing to 1.05u).
Because the essence of contracts is to do profit-loss ratios, using leverage to move objective profits with minimal cost. For example, if I think this is a very good relative bottom with the potential for a price increase, I will directly enter. If I set a stop-loss at a 5% loss in funds and then incur two consecutive losses, which is 10%, then it's time to adjust the strategy.
Please remember this rise and fall formula?
If the account capital drops by 10%, meaning you lost 10% of your account, you need to earn 11% to break even. If it drops by 20%, you need to earn 25%. If the account loses 70%, you need to increase by 233% to break even.
After consecutive losses, your capital has shrunk, but the difficulty of recovering your capital increases. This means you have less money but need to accomplish a more challenging task than before.
Therefore, after two consecutive losses, which is 10%, you must adjust your strategy. Reduce your position size.
So after losing 10%, the total funds remaining are 1285.2u. According to the plan of using a maximum leverage of 10 times with a 1/10 position, the contract position after opening will be 1285.2. In this way, even after losing ten times in a row, the account will still have 842.21 left, having lost 584.796, meaning the total funds remaining are 59%, with a 41% loss. Most would not even know how many times it would take to face liquidation under the high-leverage all-in methods. But what I want to say is that according to the formula, at this point, you would need a 67% increase to break even, which makes recovery relatively challenging.
Then the best way is to utilize your remaining 213 in off-exchange funds to supplement your position.
How much to supplement specifically? Do not exceed 1428u, which is your last maximum recharge.
Calculating this way, the account has 1428u + 842.21 = 2271.2u.
On this basis, you only need to increase by 26% to recover losses. After recovering losses, you can then add back the positions you supplemented. This is the use of off-exchange funds.
If losses continue, then continue with the original plan, so that you at least have the opportunity to lose consecutively 30 times.
I don't believe you can fail to do it right in thirty attempts. If you really can't get it right even once, it's better to withdraw your money early and go back to your job; you are indeed not suited for this circle.
Now that the part about loss reduction is complete, let’s move on to the part about profit expansion operations. Taking 1428u as an example, after a profit of 10%, the funds reach 1570.8u. At this point, you can choose to expand your position, that is, increase the original single contract position from 1428u to 1576, and so on. Taking a minimum profit-loss ratio of 1:1 as an example, we can double the position after winning 14 times. If the profit-loss ratio is controlled excellently, 4-6 trades can double the total position. How does that sound? Doesn't it sound very enticing? Yes, the advantage of this plan is that you can attack or defend, and it belongs to a versatile strategy.
I won't disclose specific amounts, but in the past year, I achieved a return of over 400% with this strategy, not only covering past losses but also gaining substantial profits.
With position management set, the next step is time management. This requires utilizing a particularly useful feature available on every trading platform: the contract cooling-off period.
What is the purpose of a cooling-off period?
First, it can help calm your emotions and prevent subsequent consecutive large losses.
Second, after calming down, use this time to re-observe the market and develop a strategy. Here’s a reference: First, you must choose one day a week as a rest day to calm down. Just like in the domestic 996 work culture, there's a rest day. The crypto market trades 24 hours a day, easily leading to fatigue, so a rest day is essential. You must set aside one day off for yourself; I usually choose Monday as my rest day because the market tends to see a good surge on weekends. After staying up all night watching the market, Monday becomes my rest day, allowing me to enter a cooling-off period where I don't look at the exchange or any related news. Aside from the rest day, after taking profits on each trade, you can choose to enter a 24-hour cooling-off period. This is to preserve your gains rather than impulsively open a second position and end up giving it all back. Anyone facing the experience of gaining and then losing will feel indescribable pain and discomfort, easily leading to emotional decisions that turn gains into losses.
The third scenario is that after two consecutive profits, you fail to close the position to take profits, and then it eventually falls back, resulting in a break-even exit. After all the hassle, it's just a mirage with no profit at all. At this point, a 24-hour cooling-off period is needed. Watching your profits slowly disappear is a tough feeling. This can be extremely dangerous.
Finally, after two consecutive stop-losses, you must initiate a 48-hour cooling-off period, essentially a two-day break. This is non-negotiable. According to our previous plan, after consecutive losses, you've already lost 10% of your principal. Losing 10% in one day without taking a break to adjust—what are you waiting for? Use this time to develop a strategy for re-entering the market. Many friends worry about missing out on opportunities, but no matter how big the opportunity, there's only one significant wave in a day. You can take your time during the cooling-off period, and after 24 hours, you can start again without any issue.
The same goes for losses; losing means you are stuck in a sideways market. A period of calm is necessary. Moreover, most of the time in the crypto space is 'garbage time,' with prices going up and down, but patience can yield opportunities.
Control the frequency within a reasonable range, while also managing emotional fluctuations and economic consumption. This way, the trading frequency can be kept between 1 to 4 trades a week; if you persist, success will come closer.
Lastly, let's talk about the 10 things that need to be adhered to in trading.
1. Never engage in revenge trading. After completing a trade, whether in profit or loss, I steadfastly resist the urge. I close the market charts and do not reopen them for 24 hours. This prevents me from engaging in revenge trading. We close trades for a reason, which means there's no reason to immediately re-enter. Revenge trading is a major cause of losses for emotional traders. This is especially crucial when leveraging trades on Bitcoin. Cryptocurrency traders watch Bitcoin prices for many hours each day, making it hard to leave and not re-enter after a loss.
2. Avoid trading cryptocurrencies on weekends. The crypto market typically experiences high volatility and low trading volume on weekends. This makes it difficult to predict price movements. Crypto whales can manipulate prices more easily in low liquidity situations, putting individual traders at a significant disadvantage. Additionally, weekends should be a time for relaxation and entertainment, away from market charts.
3. Only trade during specific time periods. I can only trade when I'm fully focused at my desk. The cryptocurrency market is open all year round, so we can't always keep an eye on it. I set specific trading hours for myself, and only during this time do I check the market. This helps avoid the impulse to constantly monitor the market and allows me to spend meaningful time with my family.
4. Never develop feelings for your assets. If you fall in love with the assets or investments you are trading, it can lead to poor decision-making. Emotionless trading means decisions are not influenced by subjective factors. People tend to emotionally favor certain altcoins, teams, or projects. This is good for investors but a potential disaster for traders.
5. Keep it simple and stupid. This is one of my firm rules. When I was a beginner, I would check multiple indicators, news sources, and patterns to try to find the optimal trading method. This often led to over-analysis. When I see trading opportunities on the charts, understanding stop-losses and position sizes is far more important than timing entry and exit.
6. Only trade when in a calm mindset. This is key. When I feel angry, tired, or stressed, I do not trade. I must be calm and focused to use my best judgment while trading. Life outside of trading is crucial for maintaining the right mindset. Spending time with family and friends, reading, and engaging in physical activities are key to my trading success.
7. Keep a diary. Journaling can be boring and tedious, but it is essential as it helps us avoid making the same mistakes twice. I must remind myself to slow down, stop looking at charts, and take the time to record as much information about my trades as possible.
8. Simulate trading every day. I still regularly simulate trading. I simulate trading Bitcoin and some altcoins daily, which helps avoid risks and test new ideas and indicators.
9. Do not blindly chase dips. Trying to perfectly time the bottom is unwise; wait for more secure trend change confirmation signals. Trading within a trend is much less risky than attempting to buy at lows and sell at highs.
10. Do not overtrade. I find that the fewer times I trade, the more money I make. Even if there are many opportunities in the market, I try to keep the number of open trades to less than three. Managing multiple trading risks is much more difficult because if every trade goes against you, you could suffer significant losses.
Just entering the market, do you always feel like profits are out of reach while losses follow one after another?
After entering the crypto space, do you feel like profits are always out of reach while losses keep coming?
Every predecessor was once a victim and grew from losses. The key lies in learning lessons from losses to avoid repeating the same mistakes. Today, I will share my own deep reflections on losses and discuss the most common reasons for losses among novice users, along with practical solutions.
Directly addressing the three key 'fatal flaws' for beginners' losses:
Trading system + discipline looseness: Can't control your hands, buying and selling randomly, too many "temptations" outside the system. 2. Insufficient stop-loss execution: Knowing to stop losses but always holding onto a fluke mentality, resulting in small losses turning into big losses. 3. Emotional trading at play: Unwilling to accept losses, engaging in revenge trading, leading to even more losses.
These three points resonate with many beginner friends. Next, I will analyze these three points in depth based on my years of practical experience and provide specific 'pitfall avoidance' guidelines.
Trading system discipline: Do not make trades without 'a plan.'
Many beginners entering the crypto space feel like headless flies, rushing in after hearing news of a coin about to skyrocket, or feeling envious and following suit when they see others making money with 'meme coins.' They even trade based on feelings or luck. This 'free-spirited' trading approach may lead to a small windfall in the short term, but in the long run, it is destined for more losses than profits.
Filter out external noise and focus on opportunities within the system:
In the crypto space, information is exploding, with various communities and KOLs spreading information everywhere. Beginners can easily be swayed by various 'insider news' and 'get rich quick myths,' shaking their trading systems. Learn to filter out this noise and reduce unnecessary distractions. Focus your energy on researching and finding opportunities that meet your trading system's requirements, and patiently wait for your 'prey.'
Stop-loss execution power: An 'essential safety gauge' is indispensable.
In the crypto space, which is a high-volatility market, the importance of stop-loss cannot be overstated. A stop-loss is like a car's airbag; you might not need it often, but when a collision (severe market fluctuation) occurs, it can save you and prevent significant losses.
Many beginners still find it difficult to decisively stop losses in actual trading, mainly due to the following psychological barriers:
Reluctance to accept losses: Humans naturally dislike losses. Stop-loss means acknowledging a judgment error and accepting a loss, which is psychologically challenging.
Fluke mentality: always thinking the price will come back up, so you wait a bit longer, thinking maybe it will return to your position. This fluke mentality will lead you to delay stop-losses repeatedly, ultimately causing small losses to turn into large losses, or even liquidation.
Solution: Overcome psychological barriers and mechanically execute stop-loss!
1. Pre-set stop-loss levels and clearly record them in the trading plan:
Stop-loss is not a sudden decision but is predetermined in the trading plan. Before opening a position, you need to clearly set the stop-loss level based on your trading system and risk tolerance, and record it in the trading plan.
2. Execute stop-loss like a robot, never being emotional.
Once the price reaches the stop-loss level, execute the stop-loss without hesitation like a robot. Don’t look for any excuses, don’t hold onto any fantasies, and don’t intervene artificially. Remember, stop-losses are for protecting your principal and leaving room for future profit opportunities.
3. Use tools to assist with stop-loss:
You can use the stop-loss function of the trading platform to set up stop-loss orders in advance. Alternatively, set a reminder on your phone near the key stop-loss level.
4. Review stop-losses and positively reinforce stop-loss behavior:
After each stop-loss, do not be discouraged, but review and analyze whether the stop-loss was reasonable. Was the stop-loss executed properly? Summarize the lessons learned.
Emotional management: Tame the 'wild horse of emotions.'
The crypto market trades 24 hours a day with severe price fluctuations, which can easily lead to emotional swings. Especially during consecutive losses, it's easier to fall into an emotional pit and make irrational trading decisions. Many people know that revenge trading is wrong, but after losses, it becomes difficult to control themselves, resulting in even greater losses.
1. Don't become attached to hot coins; when profits from altcoins reach a certain point, you need to switch. Trying to ride it to the end is inevitably a pipe dream. The reasoning is simple: altcoins cannot rise forever, and after trading them, you need to switch; otherwise, you'll fall back to the starting point, making your efforts in vain. For example, FIL and LUNA from back in the day.
2. After a period of consolidation at a high, be ready to sell: If the price consolidates at a low and makes a new low, it's likely a good opportunity. When the price is consolidating at a high and makes a new high, be cautious of the main force inducing buying; when it's time to reduce positions or exit, do not hesitate. When the price consolidates at a low and makes a new low but quickly recovers, it's likely the main force's last wash; at this point, maintain your resolve.
3. When the market environment is poor, prices may rise against the trend, and small rises can lead to larger increases. When the market environment is good, prices may fall against the trend, and small falls can lead to larger drops.
4. Add when making money, do not average down on losses. This may break many people's understanding. Our position should be increased when the price breaks above the previous high, not averaged down when it's consistently falling. Otherwise, you'll just keep averaging down and end up immobilized with losses. You must cut losses and let profits run.
5. As long as you identify the bottom price, the price will generally rise 2 and fall 1. At this point, do not doubt it; there are usually big surprises ahead, especially during an upward trend when the price rises while washing out positions. Do not exit lightly.
6. Top-tier players look at sectors first, second-tier players look at single coins, third-tier players look at indicators, and bottom-tier players just gamble. This means that when we want to buy a certain coin, we should first look at the sector. Only by engaging in hot sectors can we increase popularity and win rates. Next, look at the tokens; only looking at indicators is a rookie move, and those who look at everything are just gamblers.
7. Indicators change with volume and price, so volume and price are the sources of indicators. Do not trust indicators without considering volume and price; trading without this insight is foolish. Indicators are all calculated based on price and trading volume, so true technical analysis requires looking at both volume and price. A price increase requires significant funding to drive it.
8. In an uptrend, look for support; in a downtrend, look for resistance. When the price is rising, operating on the support line has a high success rate for low buy opportunities. In a downtrend, operating near resistance has a high success rate for shorting or exiting opportunities.