Playing in the crypto space can lead to a 50x or 100x increase in value overnight, or it can instantly drop to zero and leave you with nothing.
Playing contracts in the crypto space is like playing with your heart rate, thrilling, more exciting than a roller coaster.
Have you ever experienced consecutive losses and frequent liquidations?
Then you feel frustrated and regret your decisions?
Are you desperately wanting to recover losses, only to fall deeper?
Do you repeatedly fantasize about the scenes of success, only to be slapped in the face by reality?
This is something every trader goes through, and you and I are no exception!
The difference is that some people give up under such torment, some lose all their capital, very few persist, but what is the meaning of persistence without a complete epiphany?
I have watched countless tutorials, understood many traders' summaries, and analyzed numerous reasons for failure! Here are some points I summarized that I believe can help you:
First, manage your mindset and emotions.
Managing mindset and emotions does not mean you cannot be happy when you profit or cannot be dejected when you lose; do not become an emotionless robot!
Instead, it is essential to first firmly believe that you will succeed, believing that the current losses are only temporary, and create a positive belief system. Secondly, when losses occur, you must maintain a rational and calm mind, refrain from placing blind orders, and be able to analyze correctly and operate rationally; this is crucial!
Second, a continuously improving trading system.
Remember, trading is not gambling, but it does have probabilistic attributes. You must continuously summarize and explore a trading system that suits you in long-term trading. Specifically, establish your trading rules in various dimensions such as indicator analysis, position management, profit and loss limits, and long-short cycles to constrain yourself and determine your trading instead of being blind; otherwise, it will lead to an endless loop!
Third, fund management.
There is a saying: as long as the green mountains are left, there is no fear of no firewood. You must not have a gambling mentality; it is very dangerous because once you have this thought, in most cases, the market will fulfill you, leading you to despair! You must strictly control this point, summarize your maximum consecutive loss number to manage your funds, ensuring you have a chance to turn the tables; this requires extreme calmness. Only when you still have chips can you have the opportunity to be reborn!
Fourth, technical analysis.
This is extremely important. If you have no technical skills, do not place orders, as that is gambling on luck, and you will surely fail, which is very frightening! Learning technical indicators is a gradual process of improvement, but once you overly rely on various indicators for your judgments, you may often get lost in thought, make frequent mistakes, and then doubt the technology. Finding what suits you among many indicators and simplifying complexity is crucial. Commonly used naked K patterns, Bollinger bands, moving averages, MACD, volume bars, OBV, etc., grasp the essence of simplicity!
To make a long story short.
Perpetual contracts, also known as perpetual futures contracts, are a type of derivative trading method. Users can use perpetual contracts to go long (Long), go short (Short), or arbitrage, achieving returns many times higher than the invested capital.
Through perpetual contracts, you can not only earn money from rising coin prices but also profit from falling prices, and leverage can be used to amplify returns from a small capital.
When trading perpetual contracts, if you incorrectly predict the price trend, you may face liquidation or margin call, risking the loss of all your invested capital.
Whether you are a novice investor or experienced in cryptocurrency trading, this article will give you a deeper understanding of perpetual contracts.
The principle of perpetual contracts.
The underlying logic of perpetual contracts is: allowing investors to borrow virtual currency, buying or selling virtual currency at a specific price at a specific future point in time.
For example, Xiao Yu has 100 USDT and believes that Bitcoin's price will rise from 100 to 200 tomorrow. At this point, Xiao Yu can borrow 900 USDT from the exchange and use the 1000 USDT to buy 10 Bitcoins, selling them when the price rises to 200 the next day. After selling, Xiao Yu will have 2000 USDT, and after paying back the 900 USDT to the exchange, the profit from this trade will be 1000 USDT.
If Xiao Yu only used his original $100 capital to trade, then the profit would only be $100 USDT. So in this example, Xiao Yu used 10x leverage to go long on Bitcoin and earned 10 times the profit.
However, if Xiao Yu predicts the price direction incorrectly, and the next day Bitcoin's price drops to 50, then the 10 BTC in Xiao Yu's hand would only be worth 500 USDT, resulting in a nominal loss of 500 USDT. Therefore, trading perpetual contracts under leverage can amplify both profits and losses.
Why is it called 'contract'?
Virtual currency contract trading is derived from traditional commodity futures trading. In traditional futures trading, traders actually need to sign contracts when going long or short on a future price of a certain commodity, which is also why it is called 'contract' trading.
For example, if McDonald's predicts that potato prices will rise significantly in June next year, to control costs, McDonald's would sign a futures contract for potatoes for June next year through an exchange, regardless of how potato prices fluctuate at that time, they will purchase a batch at the agreed price.
As a result, regardless of how potato prices fluctuate, McDonald's can purchase potatoes at a stable price to ensure a stable supply of fries. If market prices rise, McDonald's can still purchase at the contract price, saving costs. Conversely, if market prices fall, although McDonald's must pay the contract price, the company's actual total costs will be lower. In fact, international companies like McDonald's do use futures contracts in real life to ensure supply stability and cost control.
However, when these commodity futures contracts extend into virtual currency trading, exchanges may borrow the operational methods of futures contracts, but they do not actually lend you money or coins. Instead, they use similar calculation methods to intuitively inform you of the leverage ratio, expected profits, or losses, lowering the threshold for contract trading and making it easier for more investors to use.
What are the types of contracts?
Perpetual contracts: perpetual contracts have no expiration date; users can hold positions indefinitely and perform closing operations themselves.
Delivery contracts: delivery contracts have specific delivery dates, including weekly, next week, this quarter, and next quarter delivery contracts. Once the specific delivery date arrives, regardless of profit or loss, the system will automatically settle.
USDT margin contracts: this means you need to use the stablecoin USDT as collateral. As long as you have USDT in your account, you can perform contract trading across multiple coins, with profits and losses settled in USDT.
Coin-margined contracts: these use the underlying coin as collateral, and you need to hold the corresponding coin before trading. Profit and loss are settled in that coin.
The most stable way to trade contracts in the crypto space.
Choose the right coin and be a good person. As a leveraged trader, volatility can be amplified by leverage, and the primary consideration during trading should not be volatility but certainty.
In a rising market, go long on strong coins; conversely, in a falling market, short the weakest coins.
For example, when the new quarter just starts, the strongest upward trends are EOS and ETH, and the first choice for going long on pullbacks is these two coins. When prices fall, the first choice for shorting is Bitcoin. Even if the final result is that mainstream coins fall more than Bitcoin, only shorting or chasing Bitcoin can greatly avoid the risk of violent rebounds.
Most traders in the crypto space are short-term traders. When trading, it is hard to hold out until the ideal closing point, and they are not very skilled at position control, nor can they rely on fluctuations to average out prices. In this situation, for most traders, a good entry price outweighs everything.
Once there is a profit, take some off the table to secure gains, and set a stop loss at the cost price for the remaining portion. This is something I have always emphasized in my community.
The essence of contract trading strategies.
(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 in line with the trend, entry point:
1. The new breakthrough point of the trend;
2. Horizontal consolidation tends to break through to a certain direction.
3. Pullback points in an uptrend or rebound points in a downtrend.
(3) Positions that align with the trend will bring you substantial profits, do not exit early.
(4) If the entry matches the larger trend, and the paper profit proves you are correct, you can use a pyramid strategy to add positions; (reference 2)
(5) Maintain position until the trend reverses and close the position.
(6) If the market trend is contrary to the entry position, stop loss and run.
In addition to adhering to the above strategies, remember three qualities: discipline, discipline, and discipline!
The way of trading is to accumulate little by little, with compound interest being king. If you go beyond your cost, you must not turn back into losses. If you have made a profit, be sure to secure a portion to prevent losing everything. In summary: be bold when you earn, and let the remaining amount be at the original price loss.
Tips for making money with perpetual contracts.
1. Eliminate full position trading.
How should funds be allocated? Fund allocation should be understood from two levels:
Firstly, from the risk perspective, understand how much loss your current account can or is willing to bear. This is the foundation for thinking about fund allocation. Once this total is determined, consider how many times you will be willing to lose that total if you continuously make mistakes in the market, to accept your fate and admit failure.
I personally believe that the riskiest method should also be divided into three parts. That is to say, you should give yourself at least three chances. For example, if the total account capital is 200,000, the maximum loss allowed is 20%, which is 40,000. Then I suggest the riskiest loss plan is: first time 10,000, second time 10,000, and third time 20,000. I think this loss plan still has a certain rationality. Because if you get it right once out of three times, you can profit or continue to survive in the market. Not being kicked out by the market itself is a kind of success, which provides a chance to win.
2. Grasp the overall market trend.
Trends are much harder to trade than fluctuations because trends involve chasing rising and falling prices, requiring composure in holding positions, while high selling and low buying align more with human nature.
Trading is about how closely it aligns with human nature, the harder it is to succeed, the more money you can make.
In an upward trend, any violent pullback should be met with a long position. Remember what I said about probability? So, if you are not in the vehicle or have exited, wait patiently for a 10-20% drop and go long boldly.
3. Specify profit and loss targets.
Setting profit and loss limits can be said to be the key to whether you can make a profit. In several trades, we need to ensure that total profits exceed total losses. Achieving this is not difficult; just adhere to the following points:
① Each stop loss ≤ 5% of total capital;
② Each profit > 5% of total capital;
③ Total trading win rate > 50%.
Meeting the above criteria (profit-loss ratio greater than 1 and win rate greater than 50%), profits can be achieved. Of course, a high profit-loss ratio with a low win rate or a low profit-loss ratio with a high win rate is also possible. Anyway, as long as the total profit is positive, it is sufficient: total profit = initial capital × (average profit × win rate - average loss × loss rate).
4. Remember not to trade excessively and frequently.
Since BTC perpetual contracts are traded 24/7, many novices operate daily, almost trading every day for 22 trading days in a month. As the saying goes: if you walk by the river often, how can you not get your shoes wet? With more operations, mistakes will inevitably happen, and after a mistake, the mindset will deteriorate. Once the mindset deteriorates, impulsive actions may follow: possibly going against the trend or over-leveraging. This can lead to a series of mistakes, easily resulting in huge losses on the books, which may take years to recover.
5. The timing of entering a contract.
Many respondents open positions 24 hours a day. This behavior is no different from giving away money. The purpose of contracts is to create a stable profit strategy within controllable risks and relatively stable indicators, not to buy in with 100x leverage and become rich! Therefore, the timing of entering the contract is particularly important!
⑴: Avoid opening positions during periods of significant positive or negative news, as the market is very chaotic at this time. Spot prices can fluctuate rapidly between 1-3%, and betting on the market can easily lead to losing everything.
⑵: I generally choose to enter the market after the second bottom or after a rally following a large fluctuation because the volatility of the market tends to stabilize after the second wave. The risk factor in the subsequent range is the lowest. The goal of contracts is to implement the most suitable strategy within the smallest risk range.
⑶: Enter the market within the indicator range. As long as the indicator parameters do not meet your expectations, do not open a position. This can be understood as entering the market within your strategy range, ignoring the market if it has not reached your psychological price. Because while contracts amplify leverage, the risk factor also amplifies, which makes self-discipline extremely important.
In summary, when the market stabilizes and indicators are in place, the risk rate can be reduced by 50%, and then you can place orders.
