How to manage risk during a significant drop?
1. Avoid being forcibly liquidated
For contract users, the first thing to avoid is being forcibly liquidated, commonly known as liquidation, which means a complete failure of the investment. There are three methods to prevent liquidation.
(1) Set take-profit and stop-loss points. Most people do not have the habit of setting take-profit and stop-loss points, which is determined by the investment psychology of greed and panic. Setting stop-loss points in advance is to reduce the interference of human emotions, allowing the system to execute the stop-loss action and thus avoid the situation of not being able to take action and ultimately facing liquidation.
(2) Timely add margin. Note that this does not mean adding margin without restraint, but rather doing so under conditions where the position and trend judgment are favorable. For example, if you are only using 10% or less of your position for contract investment and you judge that the trend will develop in your favor, you can definitely add margin at this point.
(3) Stay far beyond the 'range' of liquidation points. After opening a contract on Huobi, the 'estimated liquidation price' will be shown, and this price should only have a 1% chance or lower of occurring, thus avoiding being affected by major market fluctuations. You can adjust the liquidation price through contract multiples and positions.
2. Understand market trends to improve investment skills
All investments should be based on rational analysis and judgment, not on gambling-style bets or blind following.
(1) Understand the fundamental knowledge and concepts. You can continuously learn about trading skills and the basics of cryptocurrency through our blockchain section.
(2) Understand macroeconomic and industry trends. More and more institutions are participating in cryptocurrency market investments, and Bitcoin ETFs are being increasingly recognized by the mainstream market.
This has increasingly tied the trends of cryptocurrencies to traditional financial markets. For example, the drop in August 2024 started from the Japanese stock market and ultimately affected the global market.
(3) Master certain technical analysis skills. Technical analysis mainly predicts future price trends by studying historical market data. For example, trend lines, support and resistance levels, and moving averages, these tools can help you better seize buying and selling opportunities.
(4) Maintain a learning attitude. The cryptocurrency market is an emerging industry that integrates blockchain technology and financial knowledge, and the development iteration speed of the crypto industry is very fast, with new concepts emerging.
New gameplay is emerging continuously. Continuous rapid learning is essential to ensure that your investment strategy does not become outdated.
3. Use hedging tools wisely
The simplest and most commonly used hedging tool is contracts. If you want to continue holding rather than selling BTC or ETH, you can choose to short, which will lock the value of your held assets at the current price, allowing you to choose to close the position after the risk has passed.
4. Control emotions
Maintaining stable emotions is the foundation for making objective and rational judgments; no one can grasp the next opportunity in anger or despair.
(1) Accept uncertainty. The financial markets and cryptocurrencies are full of uncertain factors, and investors should understand that they cannot control everything. Accepting market uncertainty, not overreacting, and maintaining calm and rational thinking can help reduce emotional fluctuations.
(2) Actively communicate. You can go to the Huobi community to discuss market views with professional analysts and investors, and correct your market judgments during the communication process. Additionally, communicating actively with investors who share similar experiences can also help you calm your emotions.
Summary
Investment always coexists with opportunities and risks, accompanied by sharp rises and falls. Keeping emotions stable during declines, controlling your assets to avoid total liquidation, and continuous learning can provide better chances for returns when the next opportunity arises.
