First point, what is a contract?
Contract trading refers to the agreement between buyers and sellers to trade a certain quantity of a specific asset at a specified price at a predetermined future time. In simple terms, it means you speculate whether a certain cryptocurrency will rise or fall by a certain future time, choosing to buy long or sell short contracts to profit from the price movements. Many newcomers don't even understand what a contract is and start making reckless moves. If you win, it's good luck; if you lose, it's just your fate.
Second point, recognize your risk tolerance.
Many newcomers enter the market wanting to make big money, unable to accept the low returns of spot trading over a long period. They want a quick win and choose to trade contracts with leverage. Here, I advise that newcomers should not rush into contract trading, as the volatility in the cryptocurrency market is very high, and one misstep could lead to losses. Most people starting to trade cryptocurrencies have low psychological resilience; once they incur losses, they can fall into extreme self-blame and negativity. If you have already set your risk tolerance and are willing to use a portion of your assets to experiment, please read on.
Third point, controlling the overall market.
Many newcomers in contract trading easily fall into the misconception that it is like a matter of buying high or low, but they overlook a very serious detail: controlling the overall market trend. We can also refer to this as judgment. For example, in a situation where the overall market trend is poor, insisting on buying long can easily lead to losses. Before engaging in contract trading, please have your own judgment about the market; we can make our trading decisions based on the current dynamics of the cryptocurrency market, recent reports about the cryptocurrencies we want to trade, and our judgment of the future price range of those cryptocurrencies. Specifically, I recommend downloading market analysis software such as CoinMarketCap, AICoin, or similar tools for reference.
Fourth point, the leverage of contracts.
The most thrilling part of trading contracts is determining whether a cryptocurrency will rise or fall in the future; you can choose an appropriate leverage ratio to increase your returns. For example, leverage risk: this is easy to understand. If you open a position with 10x leverage and the price drops by 2%, your loss is magnified by 10 times, resulting in a 20% loss. Moreover, these trades do not fluctuate as little as stocks; a 1% or 2% rise or fall is quite random. Sometimes, a major player might sell off rapidly, causing the price to drop significantly. Therefore, beginners must have a clear understanding of the risks associated with leverage. However, newcomers should not rush to use high leverage because the higher the leverage, the greater the risk. A slight fluctuation could lead to liquidation. It is recommended that beginners keep leverage below 10x when trading contracts.
Fifth point, making erroneous judgments.
When walking by the river, how can you not get your shoes wet? The psychological state of most cryptocurrency traders is bullish. Sometimes, when we make erroneous judgments and the price starts to fall, what should we do? Here we must understand the significance of stop-loss. Many newcomers may ask, ‘Isn't stop-loss just a loss?’ Originally, we only had an unrealized loss; if we stop-loss, we realize it as a real loss. However, this understanding is too superficial. Someone online gives a good example: stop-loss is like a seatbelt in a car. Most of the time, it seems useless; often, when you stop-loss, the price may suddenly surge. Some people, during fluctuations, stop-loss and then reverse, only to incur further losses. In fact, stop-loss is meant to prevent you from losing too much money.
Sixth point, reasons for losses during trading.
(1) Never back down, vow to hold your position.
Most newcomers choose to hold on! Don't back down! Maybe it will come back in a bit. Often, this holding mentality is similar to gambling mentality. If you're lucky, you can hold on and get through, and naturally, you'll feel that holding on is right. But then suddenly, you face liquidation. For example, recently, due to BM's bearish comments on EOS, what started as a slight pullback led many to think it was fine to continue holding. Then the uncontrollable event of the comments turned into a massive sell-off, resulting in many liquidations. This is a devastating blow caused by black swan events to the holding mentality.
(2) Unable to resist temptation, continuously adding positions.
Sometimes after opening a position, you realize your judgment was correct, and the price has risen by several or even ten percent. Unable to resist temptation, you go to add more positions, from hundreds to thousands. If you're lucky, the price keeps rising, and your added position indeed makes you a lot of money. However, this kind of risk is immense; sometimes, continuously adding positions can worsen your stake, leading to larger losses or even liquidation during a pullback. Here, I advise beginners that when your contracts are already profitable, only then should you add positions gradually. Do not add margin to losing contracts; learn to cut losses. It's better to take a loss and open a new position than to add to a losing contract.
Seventh point, how to reduce your risk.
(1) Establish your risk tolerance.
For example, if you have a capital of 10,000 for trading, and you can tolerate a loss of 5,000 in contracts, then you can use that 5,000 as your contract fund. If your losses exceed this amount, stop trading contracts.
(2) Spend more time getting a feel for the spot market, after all, the spot market won't let you lose everything at once.
Find your own sense of timing in the spot market: when is the best time to buy and when is the best time to sell. Develop your psychological resilience for cryptocurrency trading. After all, many people feel pain even when they lose a little.
(3) Do not think of yourself as a trading genius just because you are profitable; you need a deeper understanding of the market.
You should know that even the most skilled traders have faced liquidation; which influential traders on social media haven’t? Countless people face liquidation daily, with significant amounts at stake. Desire can make people forget about risk and become greedy, often losing direction and incurring greater losses.
(4) Formulate a plan.
If you take out 5000 to trade, you can split it into 10 parts, using 500 each time. This way, at least 1 or 2 times you will make a profit. If after one or two attempts you still can't make a profit, I suggest you stick to spot trading for now; your trading foundation and luck might be lacking. This way, even if you make incorrect trading judgments, with timely stop-loss, your losses won't be substantial. Of course, I will discuss stop-loss strategies later. Position control determines your profit; making money is simply about minimizing your trading losses and maximizing your profits.
(5) Control your position well.
In uncertain trends, take small positions; even if you lose, it's a small amount. When a trend opportunity arises, trade half or full positions. This is what we call a one-sided market; at this time, you can take larger positions because we want to profit from this large swing.
(6) Do not use excessive contract leverage; learn to take breaks.
As mentioned earlier, the higher the leverage, the higher the risk, and the lower the margin. With a slight fluctuation, you could be liquidated. Additionally, the fees are significant; once you face liquidation or a massive loss, take a break before re-entering the market.
Contracts are never gambling; manage your position well, and you can make money steadily without haste, greed, or panic!!
1. Risk Management
Position Control: Invest only a small portion of your funds in each trade to avoid heavy positions and reduce the impact of single trades on your overall capital.
Stop-Loss Settings: Set stop-loss points in advance to prevent losses from expanding and to protect your capital.
2. Emotional Management
Don't rush: Avoid impulsive trading; patiently wait for the right entry timing.
Don't be greedy: Set reasonable profit targets, take profits in time, and avoid missing exit opportunities due to greed.
Don't panic: Stay calm in the face of market fluctuations, execute trades according to plan, and avoid emotional operations.
3. Strategy and Planning
Trading Plan: Establish a clear trading plan, including entry, exit, and risk management strategies, and strictly adhere to it.
Diversified Strategies: Combine different strategies such as trend tracking and arbitrage to spread risks.
4. Continuous Learning
Market Analysis: Continuously learn technical analysis and fundamental analysis to enhance your judgment capabilities.
Review Summary: Regularly review trading records to identify problems and improve strategies.
5. Tool Usage
Use leverage cautiously: Use leverage reasonably to avoid overly magnifying risks.
Automated Tools: Use tools like stop-loss and take-profit orders to reduce emotional interference.
6. Mindset Adjustment
Long-Term Perspective: Focus on stable long-term profits rather than short-term windfalls.
Accept losses: Losses are part of trading; maintain a calm mindset, and avoid letting losses affect your mentality.
Summary
Contract trading requires strict discipline and a good mindset. Through effective risk management, emotional control, and continuous learning, you can enhance your trading success rate and achieve stable profits.
Why do most people lose money in contract trading?
1. Unable to understand candlestick charts and trends.
2. Unable to understand news events.
3. When I see the market, I want to chase it immediately, fearing I will miss the opportunity.
4. If I make money, I want to make more and become mindlessly greedy.
5. If you lose money and want to recover, you sell, or if you make a little profit, you run.
6. The dealers are definitely watching my orders.
If you have the above mindset, it is not suitable for you to open a position.
Feeding Mode: Provide entry points, staggered position points, and stop-loss points, making it understandable for new traders.
* Strictly follow your strategy. Only by making money will you last; losing money is of no benefit to me.
Currently in a bull market, with opportunities every day, we share passwords.
