Today, I want to share which foolish trades in contract trading will make you regret for life.
From 2019 to May 19, 2021, futures trading made me experience a rollercoaster of life, going from tens of thousands of dollars to over 17 million RMB at peak, then crashing back to square one on May 19. I finally began to reflect and think about how to survive better in the crypto world aside from BTC and ETH.
I summarized the main reasons for contract losses as follows:
1. Position management is crucial, which primarily reflects in: the leverage of the contract and your own margin. If you don’t have a clear understanding, you might take on 100x leverage without knowing your risks or your liquidation price. 99% of liquidations occur when traders start with a small position, but end up trading heavily, leading to liquidation.
2. There’s no distinction between luck and skill. A typical example is from the year 2020 during the pandemic. A friend I met while working at Alibaba happened to enter the market right at the beginning of the pandemic, coinciding with the Fed's interest rate cuts and consecutive low rates, causing BTC prices to soar. ETH also rose from a low of over $80 to $4,880. This guy entered with over $70,000 and eventually exited with $1.85 million in April 2021.
At first, I was laughed at for losing so much on May 19. Only those who have experienced that kind of heartache understand. He was enjoying life with over 13 million RMB, pretty girls, and luxury cars, while I began to doubt life and accept my fate. But when I went to Nantong for an offline private meeting at the end of October 2024 and happened to check in on him in Suzhou, I found that he was delivering takeout and had debts of over 10 million. At that moment, I believed that learning could provide a safety net and help me better preserve my wealth.
3. Not admitting mistakes after being wrong; the worst thing in contracts is to misjudge the trend and not stop losses in time. The weakness of human nature is that 99% of people do not want to admit they were wrong, leading to one outcome: liquidation as punishment.
4. Not understanding trends; over 80% of people have experienced contract liquidations, thinking it was due to their poor candlestick skills, but that’s not the case. Candlesticks might only account for 20% of the essence. If you really want to learn, you could finish in a week, but later you might fall into a trap and lose even more, including theories like Dow Theory, and others I spent over 100,000 to learn, but in real trading, they are seldom used.
5. Not willing to calm down and learn, sinking deeper into the quagmire of losses. A gambler's biggest dream is: 'Next hand, I’ll turn it around.' But in reality, the next hand will only lead to more losses. Only those who have experienced deep pain, who know what they want, and who are willing to calm down and learn will find their way out of difficulties. Learning must be pursued through paid courses, as only then can you learn the real stuff, and your mindset will change. This way, you'll understand why others can achieve stable profits.
In the crypto space, significant losses usually stem from three main situations:
One: Holding onto a position without a stop-loss can result in a total loss.
Secondly: Frequent trading leads to stop-loss losses, causing anxiety.
Three: Losing money by going against the trend, frequently stopping losses, not setting stop-losses, emotional revenge trading, and following others' trades can cause anxiety in the crypto circle. Sometimes, it’s not the unrealized loss that makes you anxious, but seeing your friends making money while you're not in the game. At this point, your anxiety might mean you’re just a bag holder.
My principle is:
After a significant profit in trading, you must withdraw funds—it's safer to lock in profits.
After a significant loss in trading, you must take a break to avoid anxiety.
After a big profit, you must withdraw funds because when you make a big profit, it’s easy to get complacent and start making reckless trades. This can quickly result in losing back your profits. After withdrawing profits, even if you play around, the losses will be smaller, and the drawdowns will be reduced. Conversely, after a big loss, you must take a break because, after a significant loss, people tend to rush to recover losses, becoming anxious and making impulsive trades, resulting in even more losses. After a big loss, take a break, adjust your mindset, and only come back when you're ready; you’ll be able to earn back what you lost quickly.
There is a saying in technical analysis: trade what you see, not what you think. Objective trading is about trading the market signals you observe, which align with your subjective judgment of the market direction; subjective trading is about trading what you believe. If you think the market is going to rise and the price feels low to you, you enter a position, but the price might only be halfway up the mountain. Even with a light position, you may not be able to withstand it.
Five lessons I've learned from losses.
First: 'Leverage is not a 'get-rich-quick accelerator', but a 'risk amplifier'.
The biggest misunderstanding for new investors entering the market is viewing leverage as a tool for quick wealth, often using 50x or even 100x leverage. However, market fluctuations far exceed expectations, and a 1% price change at 100x leverage could lead to liquidation.
Real profitable trading: leverage should be used cautiously, with large amounts recommended to be controlled within 2-3x. Never go all-in. Just look at the HT liquidation incident in 2023 to understand why.
Second: Emotional trading is the biggest enemy.
Trying to average down when facing unrealized losses is often the biggest misunderstanding. Contracts are different from spot trading. Additionally, the mindset of 'rushing to recover losses' can lead to either chasing high and selling low or over-trading. Emotional trading can cause you to completely lose your rationality and become a 'cash machine' for the market.
You must believe: trade according to your plan and trade your plan! The real essence of this statement.
Third: Risk management is more important than profit.
Black swans can exist in this market at any time; there will always be one every year, especially when everyone is feeling complacent. Therefore, it is crucial to ensure proper take-profit and stop-loss measures. Setting aside 10% of your capital for yourself is always a wise choice.
Fourth: Both technical analysis and fundamentals are essential.
A paid student from 2022 once asked me, 'You don’t need to share your data widely, just give it to us, and there's no need to write it in your public account.'
My answer to him was: data analysis and trend judgment summaries are primarily about refining my own trading skills and continuously learning and summarizing to enhance my perception, which is to better protect the money I have earned.
Fifth: Patience brings more profit than frequent trading.
The core reason behind 99% of non-profitable trades is that trading should be like a sniper, patiently waiting for the best opportunity to present itself, while they behave like hunters, searching for opportunities in the market every day. Those who can make money are exceptions.
An important factor we often overlook during trading is the market environment. For example, after Trump took office, the entire cryptocurrency market entered a month-long bull run, with BTC prices rising nearly 60%.
Trading should not only focus on the price fluctuations of individual tokens but should pursue the overall market trend and then trade heavily. Making big money cannot rely solely on BTC's fluctuations but on the overall market movement. It should not depend on interpreting the charts but on predicting the overall market and trend.
The market is the best teacher; only the experience gained from losing your own money can help you improve. If you have the ability to learn, just buy one or two books as a foundation and then learn and iterate from practical experience. At the same time, pay to learn some valuable cryptocurrency knowledge to avoid detours and pitfalls, and you will profit!
From 'gambler' to 'investor', from 'fear' to respecting the market, from 'unable to sleep after opening a contract' to consistent and stable profits, true winners do not rely on luck but on discipline and strategy.
Daily financial tip: Liquidation.
Liquidation is an extreme risk event in the financial market caused by leveraged trading, referring to the phenomenon where an investor's account losses exceed the margin required.
Its essence is the result of leverage amplifying losses, commonly seen in high-leverage fields such as futures, forex, and cryptocurrency markets.
1. Trigger mechanism.
When account equity (capital + floating profit and loss) falls below the maintenance margin ratio, the system automatically liquidates. Example: Under 10x leverage, a 10% loss leads to liquidation (capital goes to zero).
2. Market differences.
Futures: margin requirements usually range from 5%-15%, which may lead to negative balances (owing funds to brokers).
Cryptocurrency contracts can have leverage up to 100x, with liquidation speeds extremely fast (in seconds).
Forex: Main platforms have leverage usually between 50-200x, and overnight interest may accelerate losses.
Reasons for liquidation.
1. High-leverage speculation.
Investors overuse leverage (like 100x leverage), where even minor fluctuations can wipe out their capital.
Example: If the Bitcoin price drops by 1%, a 100x leveraged contract loses 100%.
2. Holding positions against the trend.
Going against the market trend without a stop-loss (like in 2022 with LUNA and the crash when bottom-fishers were liquidated).
3. Liquidity crisis.
In extreme market conditions (like the negative pricing of oil futures in 2020), being unable to liquidate can lead to massive losses.
4. Platform risk.
Some exchanges may experience price spikes (false price fluctuations) or outages, preventing manual stop-loss actions.
Typical cases.
1. The Oil Treasure incident in March 2020.
Due to not timely rolling over contracts, a customer with the Bank of China owes over 30 billion yuan because of a negative balance.
2. The Bitcoin waterfall in May 2021.
The cryptocurrency market plummeted by 30% in a single day, with over 100,000 liquidations and total losses exceeding $6 billion.
3. The LUNA coin downfall in 2022.
The price of the algorithmic stablecoin LUNA dropped from $119 to $0.0001, triggering a global rush to liquidate positions.
Risk prevention.
1. Control leverage levels.
Newbies are advised to use ≤10x leverage, while seasoned investors should not exceed 20x.
Formula: Margin for positions ≤ total account funds x 20%.
2. Strict stop-loss.
Set a predefined stop-loss for each trade (e.g., forced liquidation at a 5%-10% loss).
Cryptocurrency contracts can set a 'trailing stop-loss' (automatically closing positions when prices move against you).
3. Diversify holdings.
Avoid excessive concentration in a single asset (e.g., do not use all your funds to go long on a particular stock option).
4. Focus on capital management.
In futures trading, reserve 3 times the maintenance margin (e.g., if the margin requirement is 10%, account funds).
Responses after liquidation.
1. Handling negative balances.
After a futures liquidation, if there are outstanding funds owed, the difference must be made up (otherwise, you may be sued). Cryptocurrency exchanges typically waive negative balance debts (e.g., Binance, Huobi).
2. Psychological adjustments.
Pause trading for at least a month to avoid revenge trading.
Revalidate your trading strategy using small positions (e.g., trial and error with 1% of your capital).
3. Technical review.
Analyze the reasons for liquidation (whether it was a strategy error or risk management oversight).
Backtest historical data to optimize stop-loss rules (e.g., change fixed stop-loss to ATR dynamic stop-loss).
Tip: Liquidation is essentially the result of losing control of risk, akin to gambling. It is advised that investors stay away from high-leverage trading or only use no more than 1% of their total assets to experiment. If liquidation has occurred, deeply reflect on the flaws in your trading system rather than blaming market fluctuations. Remember: in financial markets, survival is always more important than profit.
Continuously focus: AIXBT, JUP, DEGO.
