After experiencing liquidation in the cryptocurrency market four times, I finally understood the only secret to playing contracts.
You say there is no capital in the cryptocurrency market? Who believes that? A hundred billion-level liquidation is still just the capital within contracts. What the cryptocurrency financial market lacks is not capital, but collective effort, especially the collective effort for rising prices that crypto enthusiasts yearn for.
Why liquidation? Small capital is gambling, and big capital is also gambling. Some say big capital seeks stability, while only small capital wants to quickly accumulate wealth, hence they use high leverage and high positions.
It's obviously a joke; those who pursue explosive wealth have never differentiated by the size of capital. Let's hypothesize that one million crypto enthusiasts enter the contract market; 20 billion equals 20 thousand liquidation capital for each crypto holder. This is the calculation when all crypto holders participate in contracts, and all contracts get liquidated. Recently, more than 90% of those who went long have liquidated; if everything liquidates, who is shorting?
From this, we can deduce that not all liquidated participants are inexperienced crypto holders.
A hundred billion-level liquidation at least indicates one thing: operators with 5x, 20x, or 100x leverage are always prepared for liquidation, regardless of the size of their capital.
Two
Yesterday, my article mentioned that the cryptocurrency market has fallen wave after wave; why are we still afraid to buy?
I carefully read many messages; some users have a very clear understanding, but more people say this:
1. There is no more capital.
2. What if it falls further?
3. Afraid of losing yet wanting to win, forced to chase highs and cut lows.
4. In waiting, opportunities quietly slipped away.
5. Lacking courage and determination.
Afraid to grab cheaper chips, probably due to these five mindsets.
In fact, these mindsets are very normal and have always been mine. I suspect this is also the reason why people in the crypto circle refer to themselves as '韮菜' (chives).
The first four reasons are all cognitive factors in contract investment; the fifth is the fear of difficulty caused by a lack of understanding. When your understanding is sufficient, courage and determination will naturally follow.
Yesterday, I talked about two reasons for not daring to buy after the big drop in the cryptocurrency market: human fear instinct and understanding of contract speculation. In other words, aside from psychological reasons, the most important factor is that one has not established their own contract operating system.
Therefore, the key to achieving the investment state of 'being greedy when others are fearful' is to establish your own practical contract system.
Three
Famous investment philosopher Van Tharp once said, 'You are not trading the market, but the ideas about the market.'
This concept is your investment operating system. However, how difficult is it to establish a set of practical contract systems?
Before establishing an investment system, you need to have your own investment philosophy and a clearer understanding of yourself, such as interests, goals, knowledge and experience, skills, and limitations.
Also, your own investment strategy: when to buy, when to sell, what to buy, how to buy, how to arrange capital, and how to allocate investments, etc.
Finally, you also need a strategy for correcting mistakes. What to do if you make a mistake? This doesn't mean you should jump off a building or cut your wrists.
Seeing this pile of problems, I guarantee you feel overwhelmed, OMG, investing is too difficult to learn, with so many rules and theories. Even if you learn them, it doesn't guarantee you'll make money!
An excellent investment master said that to establish your own investment operating system, you must go through at least two bull and bear cycles: the first bull and bear cycle to establish the operating system, and the second bull and bear cycle to validate and correct your operating system.
A bull-bear cycle in the stock market lasts 6-10 years, while in the cryptocurrency market, the generally accepted bull-bear cycle is 4 years. Does it take at least 8 years to establish your own operating system? At this rate, you might have starved to death long ago.
Indeed, it is still possible to consciously establish one's own investment operating system, while some retail investors go their entire lives without establishing one.
Four
In fact, I have established many investment operating systems.
Cryptocurrency valuation systems, systems for buying, systems for selling, systems for choosing cryptocurrencies, systems for holding periods, etc. The only difference is that previously it was about trading stocks and forex, and now it’s about trading cryptocurrencies.
Due to human nature, establishing a comprehensive investment system is genuinely not easy, and it doesn't necessarily guarantee success.
Interestingly, in the past six months, I have successfully experienced liquidation in contracts four times in the cryptocurrency market. This is simply a miracle in my life.
After each liquidation, I look for all kinds of excuses and reasons, and imitate the complaints of many inexperienced crypto holders: who told it to repeatedly stab and plunge into the market?
One day, I had an epiphany: let the operating system go to hell; it's too complicated. I only need one move to ensure that from now on, the bright moon will see the green mountains, money will flow in abundantly, and I will never get liquidated.
This is my only secret to playing contracts, which is just one sentence: strict position management.
Five
Contract liquidation boils down to two points: high leverage and full positions.
Benchmarks and positions are the two aspects of position management: if you want high leverage, your position must be extremely low; conversely, if you have low leverage, your position can be higher.
However, there is no need to blame the market for reaching its limits, nor to complain about the market's violent ups and downs. The outside world has nothing to do with us; we just need to focus on our own capital situation and make absolutely safe arrangements.
The market always experiences drastic fluctuations at certain points; the safest strategy is to put yourself in a safe box. You can occasionally open the box for fresh air, but don't expose yourself to the fire of the bearish or bullish side.
Therefore, extremely strict position management is at the core of contract trading.
For example, if EOS is currently at 3U, and you keep your liquidation price for your contract at 1.5U, you naturally won't get liquidated.
Isn't there a saying, 'As long as there are green mountains, one need not worry about firewood'? If you don't blow up your position, you are indeed brave.
There is an old friend in the crypto circle who has long maintained a half-position strategy, dynamic half-position strategy; this applies to spot trading, let alone contracts, right? This old friend is indeed a true expert; his operations represent the highest realm of investment.
Even Warren Buffett, a leader in the global investment arena, retains 128 billion USD in cash. Why shouldn't we, who trade futures, practice strict position management?
Thus, after dying in the contract battlefield four times, I finally realized that the only secret to playing contracts is position management.
