1. The Essence of Leverage
Definition of Leverage
Leverage is the operation of borrowing funds to amplify the principal. For example, with 10x leverage, a principal of 1U can control a contract position of 10U, with profits and losses calculated based on 10U.
The Amplifying Effect of Leverage
Profit Amplification: If the market rises by 1%, the profit under 10x leverage = 10%.
Loss Amplification: If the market falls by 1%, the loss is also -10%.
Risk of Liquidation: The higher the leverage, the smaller the margin for error, and slight fluctuations may trigger forced liquidation.
Common Misconceptions About Leverage Choices
Beginners often pursue high leverage (50x, 100x), but the risk is extremely high. High leverage requires strong skills and mindset, otherwise, it is easy to face liquidation.
It is recommended for beginners to use low leverage (5x-10x) and gradually familiarize themselves with the market within controllable risks.
2. Core Principles of Position Control
Total Position Risk
Single trade loss ≤ 1%-5% of total funds.
For example, with an account of 10,000U, the maximum loss for a single trade should be controlled at 100-500U.
In extreme market conditions (black swan events), actively reduce positions or go flat.
Building Positions in Batches and Dynamic Adjustments
Pyramid Adding: Gradually increase positions after confirming the trend, with each addition being smaller than the previous one.
Inverted Pyramid Reducing: Take profits in batches after gaining, to avoid significant profit loss.
Inverse Relationship Between Leverage and Position
The higher the leverage, the lower the position must be:
20x leverage: Position ≤ 5% of total funds
5x leverage: Position can be increased to 20%
Setting Stop Loss and Take Profit
Stop Loss: Set based on support levels and volatility, strictly implement to avoid holding losing positions.
Take Profit: Can take profits in batches (for example, close 50% of the position at resistance and set a trailing stop for the remaining part).
Volatility Matching
High volatility assets (altcoins) = low leverage, small positions.
Low volatility assets (BTC/ETH) = can moderately increase leverage.
3. Practical Case: BTC Perpetual Contract
Account Funds: 10,000U
Risk Tolerance: Maximum single trade loss 2% (200U)
Leverage Choice: 10x
Stop Loss Margin: 1% (stop loss immediately if price reverses by 1%)
Strategies Under Different Market Conditions:
Sideways Market: Leverage 3-5x, position 5-10%, mainly high sell low buy.
Trending Market: Leverage 10-20x, position 20-30%, hold with the trend.
Extreme Market Conditions (e.g., Fed rate hikes, exchange platform crises): Reduce position to below 5%, or even go flat and observe.
Survival Formula for Contract Trading
Low leverage + small positions + strict stop loss + emotional control = long-term survival
Remember: The market always has opportunities, but once the principal is completely lost, it is out for good.
Stuck in a position, not sure what to do? Don't panic. Focus on A Yu
