The first point, what is a contract?
Contract trading refers to the agreement between two parties to exchange a specified quantity of a certain asset at a designated price at a future time. In simple terms, it means you believe a certain cryptocurrency will rise or fall by a future point in time and choose to go long or short on a contract to gain from the price changes. Many beginners don't even understand what a contract is and start making risky moves. If you win, it’s good luck; if you lose, it’s just your fate.
The second point, recognize your risk tolerance.
Many beginners come into the market wanting to make big money and cannot accept the low returns of spot trading over time. They want to make a big move and choose to trade contracts with leverage. Here, I want to remind you that it’s best for beginners not to rush into contract trading, as the volatility in the cryptocurrency market is significant, and losses can occur unexpectedly. Most people who start trading cryptocurrencies have low psychological tolerance; once they incur losses, they can fall into extreme self-blame and negative emotions. If you have set your risk tolerance and are willing to use part of your assets to try, then please continue reading.
The third point, control over the overall market.
Many newcomers to contracts can easily fall into misconceptions, thinking it’s just about buying high or low, but they overlook a serious detail: the control over the overall market situation, which we can also call judgment. For example, insisting on buying when the market is poor can easily lead to losses. Before trading contracts, please make your own judgment about the market. We can base our trading on the operational state of the cryptocurrency market, recent reports on the coins we want to trade, and predictions of the coin's future price range. Specifically, I recommend downloading market analysis software like Feixiaohao, Aicoin, or Bicon for reference.
The fourth point, the leverage of the contract.
The most thrilling part of playing contracts is judging whether this coin will rise or fall in the future, and 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 will be magnified by 10 times, resulting in a 20% loss. Moreover, these trades do not fluctuate as slightly as stocks; a 1% or 2% change is quite random. The platform's big players might sell off heavily one day, causing the price to plummet. Therefore, beginners must understand the risks associated with leverage. However, beginners should be cautious about using high leverage; after all, the higher the leverage, the greater the risk. A slight fluctuation could cause your position to blow up. It is recommended that beginners use leverage below 10x when trading contracts.
The fifth point, the decision-making errors.
If you frequently walk along the river, how can you not get your shoes wet? Most cryptocurrency traders have a bullish mindset. Sometimes, when we make a wrong judgment and the price starts to drop, what should we do? Here, we need to understand the importance of stop-losses. Many may think that stopping loss means losing money; initially, we might only be facing unrealized losses, but if we stop-loss, we incur real losses. This understanding is too superficial. Someone online gave a great analogy: a stop-loss is like a seatbelt in a car. Most of the time, it doesn't seem useful. Often, when you stop-loss, the market suddenly reverses and surges. Some traders, during fluctuations, stop-loss and then reverse their positions, leading to further stop-losses. In fact, the purpose of a stop-loss is to prevent you from losing too much money.
The sixth point, reasons for losses while trading.
(1) Never back down, resolutely hold your position.
Most newcomers choose to hold on! Don't back down! Who knows things might come back soon? Often, this holding mentality is merely a gambling mentality. If you're lucky, you may make it through, and you'll naturally feel that your holding won't go wrong, but one day you might suddenly blow your account. For instance, recently, due to unfavorable comments from BM regarding EOS, many thought it was just a minor correction and continued to hold, but the uncontrollable fermentation of the incident caused a large sell-off, leading many to blow their accounts. This is the devastating impact of black swan events on holding positions.
(2) Unable to resist temptation and continually adding to positions.
Sometimes after opening a position, you realize your judgment was correct, and it rises by a few or even tens of percent, leading you to give in to temptation and add to your position, sometimes from hundreds to thousands. If luck is on your side and the price continues to rise, the additional position indeed helps you earn a lot of money. However, this carries great risk; sometimes, continually adding to your position can worsen your situation, and during a rebound, you may end up losing even more or even blowing your account. Here, I suggest that beginners add to their positions only when their existing contracts are profitable, and to do so in batches. In a losing contract, never add margin; learn to stop-loss. It’s better to cut losses and re-open a position than to add to a losing contract.
The seventh point, how to reduce your risk.
(1) Set your risk tolerance level.
For example, if you have 10,000 in trading capital and can tolerate a 5,000 loss in contracts, then you can use that 5,000 as your contract fund. If you exceed your loss tolerance, stop trading contracts.
(2) Spend more time in spot trading to develop a feel for the market since spot trading won’t wipe you out immediately.
Find your rhythm in spot trading; know when is the best time to buy or sell. Develop your psychological tolerance for trading. After all, many people feel immense pain even with small losses.
(3) Do not think of yourself as a trading god just because you are making profits; you need to have a deeper understanding of the market.
You should know that even the most powerful traders have had their accounts wiped out; which influencer on Weibo hasn’t? Countless people blow their accounts every day, and the amounts are significant. Desire can make people forget about risk and become greedy; often, after losing their direction, they end up losing even more.
(4) Make a plan.
If you take out 5000 to trade, you can split it into 10 parts, using 500 each time; this way, you will at least make a profit once or twice in 10 trades. If you can't profit even once or twice, I suggest you stick to spot trading; your trading foundation and luck may be lacking. Even if you make a wrong trading judgment, timely stop-loss will minimize your losses. Of course, I will explain the stop-loss strategy later. Position control determines your profits; making money is about minimizing your trading losses and maximizing your profits.
(5) Control your position well.
When the trend is uncertain, use small positions; even if you lose, it will be a small amount. When the trend opportunity appears, use half or full positions; this is what we call a one-sided market, and at that time, we can go in heavy because we want to profit significantly.
(6) Don't use too much leverage, learn to take breaks.
As mentioned before, the higher the leverage, the higher your risk; lower margin means that with just a slight fluctuation, you could blow your account. Additionally, the fees are substantial; once you blow your account or incur significant losses, take a break before reinvesting in the market.
Contracts are never gambling; manage your position well, and you can make steady profits without being anxious or greedy.
Risk management.
Position control: Invest only a small portion of your funds in each trade to avoid heavy positions and reduce the impact of a single trade on your overall capital.
Stop-loss settings: Set stop-loss points in advance to prevent further losses and protect your principal.
Emotional management.
Don't rush: Avoid impulsive trading; patiently wait for the right entry opportunity.
Do not be greedy: Set reasonable profit targets, take profits in time, and avoid missing exit opportunities due to greed.
Stay calm: Maintain composure in the face of market fluctuations, execute trades according to your plan, and avoid emotional trading.
Strategies and plans.
Trading plan: Create a clear trading plan, including entry, exit, and risk management strategies, and strictly adhere to it.
Diversified strategies: Combine trend tracking, arbitrage, and other strategies to spread risk.
Continuous learning.
Market analysis: Continuously learn technical and fundamental analysis to enhance your judgment ability.
Review and summarize: Regularly review your trading records, identify problems, and improve strategies.
Tool usage.
Use leverage cautiously: Use leverage reasonably to avoid excessively amplifying risks.
Automation tools: Use stop-loss and take-profit orders to reduce emotional interference.
Mindset adjustment.
Long-term perspective: Focus on long-term stable profits rather than short-term windfalls.
Accept losses: Losses are part of trading; maintain a balanced mindset and avoid letting losses affect your emotions.
Summary.
Contract trading requires strict discipline and a good mindset. Through effective risk management, emotional control, and continuous learning, you can improve your success rate in trading and achieve stable profits.
Why do most people lose money in contracts?
1. Unable to understand K-lines and trends.
2. Unable to understand market news.
3. Seeing market movements makes you want to chase immediately, fearing you’ll miss out.
4. After making a profit, you want to earn even more without thinking.
5. If you lose, you want to get back to even, so you sell, or if you make a little profit, you run away.
6. The operators are definitely watching my trades.
If you have the above mindset, then it’s not suitable for you to open a position.
Feeding mode: Provide entry points, incremental entry points, and stop-loss points, so even new traders can understand.
Rigorously follow your strategy; making money will lead to long-term success, while losing money provides no benefits.
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