As an old trader in the cryptocurrency circle, I have unknowingly traded for 10 years. Surviving in this space is not easy! I have been through the hardships inflicted by whales, experienced many liquidations, felt lost, and countless times hidden in dark corners smoking pack after pack. This is the price of growth!
From entering the cryptocurrency circle with 50,000 to making a profit of 10 million, then going into debt of 8 million, back to 20 million in profits, and now being financially free!
I mainly mastered the techniques of futures trading, playing with contracts in the cryptocurrency circle is thrilling and more exciting than riding a roller coaster.
Today, I will share a summary of my years of trading experience for free, hoping to help everyone!
A thousandfold futures contract may seem risky at first glance, but in reality, it is my most profitable and highest win-rate investment type. Initially, I found it confusing, but I gradually realized that this is mainly due to inadvertently adhering to a clear set of trading rules:
1. Total position setting: I always keep the funds I use for futures trading fixed, e.g., an account's funds are always 300U. This means my maximum loss is 300U, and once the market trend is favorable, I have the opportunity to gain tens of thousands of U. This setting allows me to maintain controllable risks while capturing profit opportunities from major market movements.
2. Starting amount: My initial trading amount is always very low, based on the philosophy of stock trading giant Livermore. He believes that if you are correct from the start, it's best to start making money immediately. Therefore, I always start with a very small amount, even if the total capital is 300U; the starting amount often only ranges in single or double digits, ensuring that I begin in a profitable state.
3. Position increase strategy: I will only use profits to increase positions when there are profits and a clear trend. This strategy allows me to further amplify profits when the market trend is favorable while avoiding increasing risk in an unfavorable market environment.
4. Stop-loss settings: I will timely adjust stop-loss positions based on market conditions to ensure I do not lose principal. This is an important principle I adhere to during trading, helping me remain calm amidst market fluctuations and avoid emotional trading decisions.
These four rules have unconsciously enforced strict trading discipline, and the logic behind them also applies to regular low-leverage contracts because the reasoning is consistent. Of course, before starting, I still want to remind new players:
Futures trading is not child's play, especially for those who think there are certain contract skills or contract masters who can predict prices. Do not blindly believe that following them will lead to huge profits; do not have such thoughts. I certainly do not have any secret that will make you rich overnight.
Moreover, futures trading tests human nature very much. Unless you can stick to using only a small amount of money, such as 100U or 300U, this aligns with the strategy of 'using small amounts to gain large amounts', not 'using large amounts to gain small amounts'. What I share are methods I hope can provide some reference for futures players, that's all.
What types of futures contracts are there:
Perpetual contracts: Perpetual contracts have no expiration date, and users can hold them indefinitely and perform their own closing operations.
Delivery contracts: Delivery contracts have specific delivery dates, including this week, next week, this quarter, and next quarter delivery contracts. When the specified delivery date arrives, the system automatically settles, regardless of profit or loss.
USDT margin contracts: These require using stablecoin USDT as collateral; as long as there is USDT in the account, one can conduct futures trading across multiple coins, with profits and losses settled in USDT.
Coin-based margin contracts: These use the underlying coin as collateral. Before trading, one must hold the corresponding coin, and profits and losses are also settled in that coin.
Techniques for making money with perpetual contracts:
1. Avoid full position trading.
How should capital be allocated? Capital allocation should be understood from two levels:
First, from a risk perspective, clearly define how much loss we can or are prepared to bear with our account. This is the foundational thinking for our capital allocation. Once this total amount is determined, consider how many times we can afford to lose in the market before we can accept failure and admit defeat.
I personally believe: the most risky methods should also be divided into three attempts. In other words, you should give yourself at least three chances. For example, if the total account capital is 200,000, and the client allows a maximum loss of 20%, i.e., 40,000, then I suggest the most aggressive loss plan should be: the first time 10,000, the second time 10,000, and the third time 20,000. This loss plan still has a certain rationality because if one of the three times is correct, you can profit or continue to survive in the market. Not being kicked out of the market is already a success, providing opportunities to win.
2. Grasp the overall market trend
Trends are much harder to trade than fluctuations because trends involve chasing highs and cutting losses, which requires discipline in holding positions, while buying high and selling low aligns more with human nature.
In trading, the more it aligns with human nature, the less money one can make. It is precisely because it is hard to trade that it becomes profitable.
In an upward trend, any violent pullback should be an opportunity to go long. Do you remember what I said about probability? So, if you are not in a position, or if you exited, patiently wait. When there is a drop of 10-20%, be bold and go long.
3. Set stop-loss and take profit targets.
Setting stop-loss and take profit can be said to be the key to whether one can profit. In several trades, we must ensure that total profits exceed total losses. Achieving this is not difficult; just follow these points:
① Each stop loss ≤ 5% of total capital;
② Each profit > 5% of total capital;
③ Total win rate > 50%
Meeting the above requirements (risk-reward ratio greater than 1 and win rate above 50%), you can achieve profits. Of course, you can also have a high risk-reward ratio with a low win rate, or a low risk-reward ratio with a high win rate. Anyway, just ensure that total profits are positive; total profits = initial capital × (average profit × win rate - average loss × loss rate).
4. Remember to avoid excessive frequent trading.
Due to BTC perpetual contracts trading 24 hours non-stop, many newcomers trade every day, almost every day in a month with 22 trading days. As the saying goes: Always walking by the river, how can you not get your shoes wet? The more you operate, the more likely you are to make mistakes, and once you make a mistake, your mindset can worsen. Once the mindset deteriorates, you may act impulsively, choosing 'revenge' trading; it may be against the trend or heavily leveraged. This can lead to one mistake after another, easily resulting in huge losses on the books, which may take years to recover.
The most stable way to trade futures in the cryptocurrency market:
Choose good coins and be a good person. As a leveraged trader, volatility can be amplified through leverage, but the primary consideration during trading should be certainty rather than volatility.
In a rising market, go long on strong coins; conversely, in a falling market, short the weakest coins.
For example, at the start of a new quarter, the strongest performers are EOS and ETH, while for pullbacks, the first choice for going long is these two coins. When shorting in a downtrend, Bitcoin is the first choice; even if the final result shows that the mainstream coins drop more than Bitcoin, only shorting or chasing Bitcoin can greatly minimize the risk of a violent rebound.
Most cryptocurrency traders are short-term traders, and during trading, it is hard to persist to the ideal exit point. They also may not be proficient in position control and cannot rely on fluctuations for averaging prices. Given this situation, for most traders, a good entry price is worth more than anything.
Once in profit, take some off the table to secure gains, and set a stop loss at the cost price for the remaining part. This is something I have always emphasized in my community.
As for the main techniques:
First, transfer USDT into the exchange's contract account, but the total amount should not exceed 300U. This amount is set based on the proportion of my personal spot trading capital. Generally, one can also set the trading amount based on 1% of total funds, but each trade should not exceed 300U (this restriction only applies to thousandfold contracts).
Additionally, I do not actually recommend trading methods like hundredfold futures due to their high risks and low cost-effectiveness. Either choose low-leverage contracts below 5X with large positions, or opt for high-leverage contracts of 500-1000X with very small positions. It is best to choose only the latter method, because futures trading inevitably has liquidation situations, and even low-leverage contracts are no exception. A thousandfold futures contract will either liquidate at 300U or yield substantial profits; overall, the risk-reward ratio is extremely significant.
Therefore, if you master the correct method, a thousandfold futures contract is likely to be profitable. However, if the exchange does not have an ADL liquidation mechanism, it is likely to be wiped out. Previously, my group and I managed to wipe out the thousandfold futures on A exchange until they were completely taken offline...
I want to emphasize: the essence of futures trading is to leverage small amounts to gain large amounts, not to leverage large amounts to gain small amounts.
Moreover, due to the extremely high leverage of thousandfold contracts, the fees and funding costs have become relatively minor; the key is whether the right positions are opened. Additionally, the fees for thousandfold contracts are much cheaper than for other contracts at the same rate. From another perspective, futures trading is essentially borrowing money to open positions, and the only requirement is to pay interest on that borrowed money. If liquidated, there is no need to pay back, making it a very good investment target.
Of course, if you don't trade according to my rules, the speed of losses will be very fast.
The most important thing is still position management:
Position management includes capital management and risk control. The term 'position' should not just be understood literally; it more expresses when to increase positions, how much to add, where to reduce positions, and by how much. It is essentially a roadmap of 'entering, adding positions, reducing positions, and exiting'.
Thus, the complete trading process should be:
1. Market analysis; you can use any technical analysis.
2. Position management. After entering, consider the possible occurrences: what to do with profits, whether to add positions, completely exit, or continue holding. If profits expand again, what then? If losses occur, is it stop-loss, holding, or partially exiting? How much loss would trigger a complete exit? Position management considers both risk and return factors.
3. Strictly execute trades; once your plan is clear, start implementation without letting market fluctuations disrupt your thoughts.
4. Summarize trades; after completing a trade, review it alongside previous trades. The review samples should span across upward, downward, and sideways markets. Based on this, improve and optimize market analysis, position management, and trade execution processes.
First, we need to find the entry point according to our trading skills, which must be a support line. When the market is above the support line, the trend is upwards; when the market breaks below the support line, the trend is downwards. More importantly, the support line is also the basis for defining potential risks. When the stop loss is placed below this support line, the potential risk amplitude is determined. If it touches the initial stop loss area below the support line, one should first exit or close most positions and then gradually reduce positions as the price continues to fall until all positions are closed.
Thus, the potential profit amplitude is above the support line, and the upward market trend has not ended, so theoretically, potential profits are infinite. After entering, if the price rises, we can hold our original position or gradually increase positions based on the existing ones. We will adjust the stop-loss based on market developments. When the market behaves as we expect, we should move the stop-loss closer to the cost price or leave a certain amplitude below the support line. Moving the stop-loss continuously reduces the risk amplitude in the market, equivalent to locking in floating profits.
When the price rises again to a new support or resistance level and then starts to retreat, this support or resistance level becomes a reduction area, and we need to gradually close all positions. To summarize: First, we need to find a support resistance line at the cost price. When the price rises far from the cost line, we gradually increase positions; increasing positions must be done gradually. When the price falls and moves further away from the cost line, we gradually decrease positions, which must also be done gradually. Your position management technique must consider both risk and reward.
Six basic principles of position management:
First: Do not operate with full positions; always keep a certain proportion of spare funds:
Second: Buy and sell in phases to reduce risks, dilute costs, and amplify profits. The advantage of buying in phases downwards and selling in phases upwards is that your average price is lower than others, leading to higher profits.
Third: When the market is weak, hold light positions; in a bear market, it’s best not to exceed half positions. When strong, you can hold heavier positions; in a bull market, it is suggested to limit positions to 8 layers, keeping 20% as short-term or spare funds for unexpected events.
Fourth: Adjust positions accordingly as the market changes, appropriately adding or reducing positions.
Fifth: Stay in cash during a low market and wait for opportunities to arise.
Sixth: Position swap: Retain strong coins and sell weak coins.
The above 6 principles apply to both spot and futures. If you still don't understand, please read it carefully a few times; reviewing helps in learning.
Now let’s talk about methods of position management, which is to operate in phases.
Phased operation refers to dividing the invested capital into portions for building positions, adding to positions, or reducing positions. This phased operation can be completed within a day or over a period.
Why do these actions? Because the cryptocurrency market is unpredictable, both rises and falls are highly probable events, and no one can accurately predict short-term price fluctuations. Therefore, sufficient capital should be reserved to cope with unpredictable volatility.
If one engages in full position trading without sufficient assurance, any change in market direction can lead to significant losses. Thus, using a phased approach can reduce the risk of full capital investment, dilute costs, and serve as the foundation for reducing costs and amplifying profits.
Next, let’s talk about how to phase trades: divided into equal portions and non-equal portions.
First: Equal distribution, also known as rectangular trading methods, refers to dividing funds into several equal portions and buying or selling in turn. The proportion of funds for each buy or sell is the same. Usually, 3 or 4 portions are used. For example, buy 30% first; if profits arise, then buy another 30%; if not, temporarily refrain from new investments. When the price of the coin reaches a certain high point or market conditions change, gradually reduce positions and sell.
Second: Non-equal distribution refers to proportionally dividing funds for buying or selling, such as ratios of 1:3:5, 1:2:3:4, 3:2:3, etc. Based on the ratios, the resulting shapes include: diamond, rectangle, hourglass, etc., commonly using pyramid trading methods.
Third: Compare using the same funds and positions but different methods.
Pyramid: Buy 5 layers at 1000, 3 layers at 1100, and 1 layer at 1200, average price 1055.
Inverse Pyramid: Buy 1 layer at 1000, 3 layers at 1100, and 5 layers at 1200, average price 1144.
Equal Rectangle: Buy 3 layers at 1000, 3 layers at 1100, and 3 layers at 1200, average price 1100.
If the price rises to 1200, profits respectively: Pyramid 145, Inverse Pyramid 56, Rectangle 100.
If the price falls to 1000, losses respectively: Pyramid +55, Inverse Pyramid -144, Rectangle -100.
Comparatively, the pyramid method has the least cost, yielding larger profits when prices rise. When prices fall, it bears more risk. The inverse pyramid is the opposite; if the price falls to 1000, the inverse pyramid loses 144. In actual use, applying the pyramid method when buying and the inverse pyramid method when selling is more reasonable.
After a significant drop in coin prices, when unsure whether the bottom has been reached, if we buy at this point, we fear being trapped if prices continue to fall. If we don't buy, we worry about missing the upward reversal. In this case, we can use the pyramid building method.
For example:
If a coin drops to 10U, buy 20% of the position; if the price drops to 8U, enter another 30%. At this point, the average cost is 8.6U.
If the market continues to drop to 5U, then enter 40%, average at 6.5U.
If the price rebounds to 6.5U, it’s break-even. If it rebounds to 10U, it means a profit of 3.5U. But if at 10U you fully invest, when the price returns to 10U, you just break even.
During the price rise, the lower the price, the larger the buying position should be; as the price gradually increases, the position should gradually decrease. This method of buying belongs to right-side position building. Such costs are relatively safe; as long as prices do not fall below the holding cost, there is no need to panic.
This method requires a relatively high standard for the first entry due to the heavier initial position, thus needing some grasp of market fluctuations, suitable for technical players.
The inverse pyramid selling method, in contrast to the regular pyramid, has a wider upper section that narrows downwards, resembling a funnel. When the coin price rises, gradually reduce the number of coins held, meaning the quantity of coins sold increases as the price rises. This is about reducing or clearing positions.
The core of position management is outlined in the above points. Once understood, I believe that in the future, whether for spot or futures, you will have a clear strategy.
Contract position management
ETH position allocation, calculated by quantity!
A capital of 1000u cannot hold more than 5 positions
A capital of 3000u cannot hold more than 10 positions
A capital of 5000u cannot hold more than 20 positions
A capital of 10000u cannot hold more than 30 positions
A capital of 30000u cannot hold more than 50 positions
A capital of 50000u cannot hold more than 100 positions
BTC position allocation, calculated by quantity!
A capital of 1000u cannot hold more than 0.5 positions
A capital of 3000u cannot hold more than 1 position
A capital of 5000u cannot hold more than 2 positions
A capital of 10000u cannot hold more than 3 positions
A capital of 30000u cannot hold more than 5 positions
A capital of 50000u cannot hold more than 10 positions
Futures are actually the same as spot trading, with the same initial capital for each order and the same number of orders each time. Stop profits when needed, accept losses as they come, treat yourself as a trading machine! In the end, your strength will conquer you!
About risk
1: Risk of liquidation.
There is no method in the world that can guarantee profits, especially for making big money quickly. Futures trading can amplify profits, and many successful individuals have achieved a turnaround from being poor to wealthy, although many have also been liquidated. However, this is a market based on competition; your liquidation does not mean others cannot succeed. You should focus on honing your skills, as futures can yield quick profits but also come with enormous liquidation risks, which is the biggest risk.
2: Pin insertion in exchanges.
The so-called pin insertion refers to the technical K-line, where a very thin line appears going up or down. This tiny line in one minute will not affect the spot market, but the futures contract is different because the leverage is amplified, and the amplitude also becomes larger. With 100 times leverage, just a 1% movement can lead to liquidation.
3: Amplified human nature
Anyone who has traded futures will understand what this means. Clearly seeing the right direction, making a trading plan, adhering to discipline, setting stop losses and take profits, controlling positions, leverage, etc., all forgotten when trading. The necessary stop loss is not executed, choosing to hold the position, resulting in liquidation. Futures can easily lead to emotional highs, amplifying desires and leverage. Many find it hard to control their own human nature, failing to adhere to trading discipline, leading to a vicious cycle of liquidation. In fact, the greatest enemy we face in trading is our own human nature.
Short-term high leverage is the correct way to trade futures; it is high risk but offers higher returns. — — Note, I must emphasize again, I am not advising you to trade high leverage, especially for newcomers, don't even touch it, because you won't understand. I am just sharing my thoughts and methods.
1. Formulate your own system.
In a trading system, there is no holy grail.
We can see that long-term performance by short-term experts like Lam Williams and CIS has been very good. The former’s books have sold a lot, but I have not seen a second Williams, as even slight changes in one's mindset or system can lead to vastly different trading outcomes.
Therefore, if you want to wear the crown, you must bear its weight. Form your own trading system, enjoy its benefits, accept its shortcomings, and continuously summarize market rules and make improvements to succeed.
2. Understand the risk-reward ratio.
In the trading system, the risk-reward ratio is the most important content. The real profit formula is: profit - loss - fees > 0.
There are three basic models in trading, the first two are:
One is high risk-reward ratio + low win rate + low frequency. Trend following, medium to long term. For instance, Ouyang Zhuai bought long at above 3000 and held until being force liquidated by OKEX for nearly half a year. Fatty's Bitcoin with 100,000 capital made a small target in the 2021 bull market, which was also a trend trader.
Two, low risk-reward ratio + high win rate + high frequency. Short-term expert mode, where the risk-reward ratio is often 1:1, which is very poor. Only some legendary figures can achieve this; I feel I cannot do it. There is also a type of person who seems to quantitatively trade high-frequency to eat the difference in exchange fees, which is quite advanced, and they generally do not teach others. Exchanges tend to ban anyone discovered doing this.
The third aspect is a terrifying risk-reward ratio + moderate win rate + extremely low frequency. The thousandfold I mentioned is my classification, let's call it the third type, a unique tool in the cryptocurrency circle:
Big data shows that retail investors have a win rate of about 33%.
In fact, from a comprehensive strategic and tactical perspective, both high win rate and low win-loss ratio systems and low win rate high win-loss ratio systems, as well as my system, can be successful.
Therefore, there is no need to dogmatically believe that only a low win rate and high win-loss ratio is the only road; the win-loss ratio must reach above 3:1. A win rate of 10% or 90% can both potentially create a successful trading system.
Since both high win rates and low win rates can be successful, there is no need to be entangled in whether to trade long-term or short-term; a mixed approach can be adopted. The important thing is to find a trading method that suits oneself, given that the trading strategies and tactics align well.
A trading system is a weapon that allows you to achieve stable profits.
It can help you mark key positions, discover entry signals, and find trading opportunities that allow you to profit.
So, to reiterate, as long as there is a stable trading system, when opportunities arise within the system, just execute them. If you incur a loss, it's best to take revenge by doing what you should do; leave the rest to the market. In the end, you can always use profits to cover losses.
However, the biggest problem for 99% of people is that they do not have their own trading system. Therefore, when they trade, they fear losing money, as losing this money means it cannot be earned back. Even if they earn back through luck, they will eventually lose it all through skill.
So, how do you have your own trading system?
1. Cycle consistency: Choose a trading cycle (intraday, swing, trend) that fits your capital, time, and personality, and maintain consistency in trading cycles.
2. Establish trading rules to form a closed trading loop: Including: opening standards, closing standards, stop-loss, and take profit.
3. Risk controllability: A key task in trading is risk control, including position size, capital management, stop-loss settings, etc., ensuring that risks remain within manageable and personal thresholds.
4. Testing and optimization: Use historical data and real-time calculation results to test and evaluate the trading system's effectiveness, making necessary adjustments and optimizations.
5. Discipline and execution: Follow the trading system, strictly execute your trading rules, and maintain trading discipline.
In addition to the above steps, independent thinking, psychological management, emotional control, and other human factors are also part of the system.
Having traversed the market for many years, I deeply understand the opportunities and pitfalls within. If your investment isn't going well, and you feel frustrated with losses, leave a 999 in the comments! I will share insights!
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