Having been in the crypto market for several years, I consider myself to have outperformed 90% of contract traders. I have experienced capital pools, contracts, and arbitrage, and have been ruthlessly harvested by market makers. I have gone through the pitfalls that the market has to offer.
1. Core Trading Logic: Certainty First, Volatility Second
Trend Confirmation and Cryptocurrency Selection
Bullish Market: Prioritize cryptocurrencies with clear technical upgrades and increased institutional holdings. For example, in May 2025, Ethereum (ETH) surged 40% to $2600 within 72 hours due to the introduction of account abstraction and higher staking limits from the Pectra upgrade. At this time, focus on mainstream coins like ETH and Solana (SOL), avoiding excessive chasing of altcoins.
Bearish Market: Short cryptocurrencies with low volatility to avoid violent rebounds. Bitcoin (BTC) showed a significant decrease in volatility in 2025, exhibiting institutional characteristics, with a correlation to the S&P 500 stabilizing between 40%-60%, making it a relatively safe shorting target. Even if mainstream coins decline more sharply, shorting BTC still helps reduce risks.
Precise Control of Opening Timing
Breakout and Pullback Strategy: Taking ETH as an example, when the price breaks the upper Bollinger Band (e.g., $2000), wait for a pullback to the middle band ($1900) or EMA30 average ($1880), while ensuring reduced trading volume (below 50% of the volume at breakout) and open interest (OI) has not significantly decreased, as this increases the probability of success for going long.
Funding Rate Arbitrage: When the funding rate for BTC perpetual contracts reaches +0.1% and the spot price is sideways, a hedging strategy of 'shorting contracts + buying spot' can be adopted, with an annualized yield of up to 36%. However, ensure that transaction fees and borrowing costs are lower than the returns.
2. Capital Management: Precise Control of the Lifeline
Position Allocation Formula
Single Trade Risk Control: Each trade should not exceed a 2% loss of the principal. For example, with a principal of $10,000, the maximum loss per trade is $200. If going long on BTC at an opening price of $60,000 with a stop-loss at $58,000 (a drop of 3.3%), the position calculation would be: Position = (60000 - 58000) / 200 = 0.1 BTC (leverage = 6 times)
Volatility Adjustment: If BTC's recent average volatility (ATR) is $2000, the stop-loss can be widened to 1.5 times ATR ($3000), and the position can be reduced to $4000 (leverage 4 times) to adapt to a high-volatility market.
Dynamic Position Management
Isolated Position Mode: Use 10% of the principal ($1000) solely for ETH trading with 10 times leverage (margin $100). Open the first position at 50% ($50), if the price rises by 2%, increase position by 30% ($30), and keep the remaining 20% as backup. In extreme market conditions, prioritize closing profitable positions to retain principal.
Correlation Hedging: For every $10,000 long position in BTC, short $8000 in ETH (approximately 0.8 correlation). In March 2024, a trader using this strategy only lost 0.5% during a 5% BTC pullback, while an unhedged position would have lost 5%.
3. Technical Analysis: Simplifying complex situations into practical frameworks
Core Indicator Combination
Naked K Patterns: Focus on engulfing patterns, hammer lines, hanging man lines, and other reversal signals. For example, before ETH broke $2600 in May 2025, a bullish engulfing pattern appeared on the 4-hour chart, along with increased trading volume, confirming the trend reversal.
Dynamic Bollinger Bands: Dynamically adjust the period based on market volatility (N value limited to 20-60), go long when the price breaks above the upper band, short when it falls below the lower band, and close positions when it returns to the middle band. This strategy achieved an annual return of 67% in backtesting, with a maximum drawdown of 15%.
Funding Rate: When the perpetual contract funding rate reaches ±0.05%, it may trigger a reversal in long and short forces. For example, in March 2025, ETH's funding rate plummeted from +0.12% to -0.05%, resulting in arbitrageurs losing over 25% in a single day.
Dynamic Take Profit Strategy
Three-tier Take Profit Method: Taking SOL as an example, when the current price is $150, the first take profit tier is $160 (close 30%), the second tier is $170 (trailing stop loss of 5% on pullback, close 50%), and the third tier is $180 (close remaining 20% below the resistance level by 1%).
Cost Price Stop Loss: After making a profit, move the stop loss of the remaining position up to the opening price to ensure no loss of principal. For example, after making a profit at $2600 for ETH, set the stop loss at $2500 to retain the potential for further gains while avoiding pullback risks.
4. Risk Control: Exchange Mechanisms and Market Sentiment
Funding Rate Trap
The perpetual contract funding rate is settled every 8 hours, and long-term holdings must calculate annualized costs. For example, if going long on BTC with 5x leverage, paying 0.05% every 8 hours, the annualized cost can be as high as 54.75%. Day traders can close positions before settlements to avoid fees.
Exchanges like Binance have adjusted settlement frequency; when the funding rate reaches ±0.3%, the settlement frequency increases to hourly, requiring timely strategy adjustments.
Response to Extreme Market Conditions
Position Reduction Protection: When prices trigger the exchange's 'position reduction protection' mechanism, prioritize closing profitable positions to retain principal. For example, in March 2025 during a sharp decline in ETH, a user avoided total liquidation through this strategy.
Limit Price Stop Loss: In extreme conditions like DOGE's flash crash, market price stop-loss may face a 12% slippage; at this time, a limit price stop-loss should be used to lock in the price.
(5) Market Characteristics and Strategy Adjustments in 2025
Rotation of mainstream cryptocurrencies
ETH remains a core asset, but Solana (SOL) has seen a price surge of 24% to $174.64 in March 2025 due to its inclusion in the U.S. crypto reserve, becoming a new strong cryptocurrency. It is recommended to include SOL in bullish targets.
Selection of shorting targets
Bitcoin (BTC) has decreased volatility, making it suitable as a stable shorting target, but leverage should be controlled within 10 times. For high-risk takers, shorting narrative-driven meme coins (like CHILLGUY, MOODENG) is possible, but one must exit promptly when the funding rate turns negative or the price falls below EMA50.
Tools and Technology Upgrades
AI Capital Management: Platforms like Matrixdock dynamically adjust investment strategies through AI, optimizing positions with on-chain data, enhancing annual returns by over 30%.
Cross-platform Arbitrage: Utilize liquidity differences in decentralized exchanges like Hyperliquid to hedge arbitrage when the BTC contract price deviates from the spot by more than 0.5%, but be cautious of liquidation risks.
(6) Psychological Construction: Execution Discipline Against Human Nature
Positive Belief System
Establish the understanding that 'losses are costs, not failures,' and cultivate discipline through simulated trading. For example, when testing a dynamic Bollinger Bands strategy, conduct a 3-month historical data backtest, then verify with 1% of the principal in live trading.
Emotion Monitoring Mechanism
Set a maximum daily loss limit (e.g., 5% of the principal) and stop trading if reached. Use an 'emotion log' to record psychological states during each trade and analyze triggers for emotional decisions.
(1) Identify the main trend and trade in the direction of the main trend; otherwise, do not enter the market.
(2) If you are trading with the trend, entry point:
1. New breakout point of the trend;
2. Breakout point in the direction of sideways consolidation;
3. Pullback points in an uptrend or rebound points in a downtrend.
(3) Trading with the trend will bring you substantial profits; do not jump off early;
(4) If the entry aligns with the major trend and paper profits prove you are correct, pyramid up through technical means; (refer to 2)
(5) Maintain position until the trend reverses and close the position.
(6) If the market trend is contrary to the position, cut losses and run.
In addition to sticking to the above strategies, remember three qualities: discipline, discipline, and discipline!
The way of trading is to accumulate small gains into large ones; compounding is king. If you have moved away from costs, you must not turn back into losses. If you have made a profit, be sure to take some off the table to prevent working for nothing. In summary: If you make a profit, be bold; if you have losses, take the original price loss.
