Point one: What is a contract?
Contract trading refers to the agreement between buyers and sellers to receive a specified quantity of a certain asset at a designated price at a future date. In simple terms, it means you believe a certain cryptocurrency will either rise or fall by a certain future date, choosing to go long or short on contracts to gain from the price changes. Many newcomers do not even understand what contracts are and start making risky moves. If you win, it's just good luck; if you lose, it's just your fate.
Point two: Recognize your risk tolerance.
Many newcomers enter the market wanting to make big money and cannot accept the low returns of spot trading over time. They want to make a quick gain and choose to trade contracts with leverage. Here, I want to remind everyone that beginners should refrain from diving into contracts for now, as the volatility in the cryptocurrency market is enormous, and one careless move can lead to losses. Most people who start trading cryptocurrencies do not have a high psychological capacity; once they incur losses, they may fall into extreme self-blame and negative emotions. If you have already set your risk tolerance and are willing to risk a portion of your assets to try, then please continue reading.
Point three: Control over the overall market.
Many newcomers to contract trading can easily fall into the misconception that it's just about buying high or low, but they overlook a serious detail: controlling the overall market trend, which we can also refer to as judgment. For example, if the overall market is performing poorly, insisting on buying long can easily lead to losses. Before engaging in contracts, please make your own market judgment based on the current state of the cryptocurrency market, recent reports about the cryptocurrencies you want to trade, and predictions about the future price range of those cryptocurrencies. Specifically, I recommend downloading market analysis apps like Feixiaohao, Aicoin, and CoinMarketCap for reference.
Point four: The leverage ratio of contracts.
The most thrilling aspect of contract trading is determining whether you think a cryptocurrency will rise or fall. You can choose an appropriate leverage ratio to enhance your returns. For example, with leverage risk: this is easily understood. If you use 10x leverage for a trade and the price drops by 2%, your loss is magnified by 10 times, resulting in a 20% loss. Moreover, these trades do not have the small fluctuations typical of stocks; a 1% or 2% change can be quite random. The market may suddenly see a significant sell-off, causing prices to plummet. Therefore, beginners must understand the risks of leverage. However, beginners must remember not to rush into high multipliers; the higher the leverage, the greater the risk. With slight fluctuations, your position may be liquidated. It is recommended that beginners keep leverage below 10x when trading contracts.
Point five: Decisions made from incorrect judgments.
If you often walk by the river, you will inevitably get your shoes wet. Most traders have a bullish mindset. Sometimes, when we make a wrong judgment and the market starts to drop, what should we do? Here, we need to understand the significance of stop-loss. Many friends might ask, 'Isn't stop-loss just losing money? Originally, we were only facing unrealized losses, but if we actually execute a stop-loss, then it's a realized loss.' However, this understanding is quite superficial. Someone on the internet gave a great example: stop-loss is like a seatbelt in a car. Most of the time, it seems useless; often, when you stop-loss, a significant rally occurs. Additionally, some people stop-loss during consolidation and then re-enter, resulting in further losses. In fact, stop-loss is meant to prevent you from losing too much money.
Point six: Reasons for losses during trading.
(1) Never back down; resolve to hold your positions.
Most newcomers choose to hold on! Don't back down! Who knows, it might come back soon. Often, this holding mentality is akin to gambling; if you're lucky and manage to hold on, you naturally start believing that your holding will not be wrong. But suddenly, you might face liquidation. For instance, recent comments by EOS's BM were bearish; initially, it was just a slight pullback, but many felt it was okay to hold on. The uncontrollable nature of the comments led to market panic, resulting in heavy sell-offs, and many faced liquidation. This is the devastating impact of black swan events on holding positions.
(2) Unable to resist temptation, continuously adding to positions.
Sometimes after opening a position, you find that your judgment was correct, and the price has increased by a few or even tens of percent. Unable to resist the temptation, you rush to add to your position, investing hundreds to thousands. If you are lucky and follow the trend, the price continues to rise, and your added position indeed earns you a lot of money. However, this is a huge risk; sometimes your constant adding to the position can actually increase your exposure, making you susceptible to larger losses or even liquidation during a pullback. Here, I suggest that beginners only add to their positions when their existing contracts are already profitable. Add in batches. Do not add margin to losing contracts; learn to stop-loss. It is better to cut losses and re-establish a position than to add to a losing contract.
Point seven: How to reduce your risk.
(1) Set your risk tolerance.
For instance, if you have a principal of 10,000 for trading cryptocurrencies and you can tolerate a loss of 5,000 in contracts, then you can use this 5,000 as your contract fund. If your losses exceed your tolerance, stop trading contracts.
(2) Spend more time feeling the market in spot trading; after all, spot trading won’t let you lose everything in one go.
Find your feel in spot trading: when is the best time to buy, and when is the best time to sell. Develop your psychological capacity for trading cryptocurrencies. After all, many people feel heartbroken even if they lose a little.
(3) Do not think of yourself as a trading master just because you are making profits; you need to have a deeper understanding of the market.
You should know that even the most skilled traders have experienced liquidation; which prominent figures on Weibo haven't? Every day, countless people face liquidation, and the amounts can be substantial. Desire can make people forget about risks and become greedy, often leading them to lose more after losing their direction.
(4) Make a plan.
If you take out 5,000 to play with, you can split it into 10 parts, using 500 for each trade. This way, at least one or two trades should be profitable. If you can't manage to make a profit in one or two trades, I suggest you stick to spot trading. Your trading foundation and luck may not be strong enough. This way, even if your trading judgment is wrong, timely stop-loss will ensure your losses are not too significant. Of course, I will discuss stop-loss strategies later. Position control determines your profitability; making money is simply about minimizing your trading losses and maximizing your profits.
(5) Manage your positions well.
When the trend is unclear, take small positions; even if you incur losses, it will be a small amount. When opportunities arise in a trending market, use half or full positions. This is what we call a one-sided market; at this time, you can take a larger position because we want to make significant profits.
(6) Don’t use too high a leverage ratio; learn to take breaks.
As mentioned earlier, the higher the leverage, the greater your risk. The lower the margin, the more likely you are to face liquidation with even a slight fluctuation. Additionally, the fees can be substantial. If liquidation occurs or there are significant losses, take a break before re-entering the market.
Prepare to place your orders!
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