Why do contracts always end in liquidation? It’s not bad luck; you simply don’t understand the essence of trading! This article, condensing ten years of trading experience, presents a low-risk principle that will completely overturn your understanding of contract trading — liquidation is never the market's fault, but a time bomb you planted yourself.
Three major truths that overturn understanding
Leverage ≠ Risk: Position size is the lifeline
Using 1% position with 100x leverage results in actual risk equivalent to only 1% of a full spot position. A student used 20x leverage to trade ETH, investing only 2% of the principal each time, achieving three years without liquidation. Core formula: Actual risk = Leverage × Position ratio.
Stop loss ≠ Loss: The ultimate insurance for the account
In the March 12, 2024 crash, the common feature of 78% of liquidated accounts: losses exceeding 5% without setting stop losses. Professional trader’s rule: single loss must not exceed 2% of the principal, akin to setting a 'circuit fuse' for the account.
Rolling positions ≠ All-in: The correct way to open compound interest
Ladder position-building model: First position 10% for trial, use 10% of profits to increase position. With a principal of 50,000, the first position is 5,000 (10x leverage); every 10% profit, add 500 to the position. When BTC rises from 75,000 to 82,500, the total position expands only by 10%, but the safety margin increases by 30%.
Institution-level risk control model
Dynamic position formula
Total position ≤ (Principal × 2%) / (Stop loss range × Leverage)
Example: With a principal of 50,000, a 2% stop loss, and 10x leverage, maximum position = 50000 × 0.02 / (0.02 × 10) = 5,000
Three-stage profit-taking method
① Take profit 1/3 at 20% ② Take profit another 1/3 at 50% ③ Move stop loss for remaining position (exit when breaking the 5-day line)
In the 2024 halving market, this strategy increased a 50,000 principal to a million in two trends, with a return rate exceeding 1900%
Hedging insurance mechanism
When holding positions, use 1% of the principal to buy Put options, which can hedge 80% of extreme risks based on actual tests. During the April 2024 black swan event, this strategy successfully saved 23% of account net value.
Empirical data of deadly traps
Holding a position for 4 hours: Bankruptcy probability increases to 92%
High-frequency trading: Average monthly operations of 500 result in a 24% loss of principal
Profit greed: Failing to take profits in time leads to an 83% profit drawdown in the account
Four, the mathematical expression of the essence of trading
Expected profit = (Win rate × Average profit) - (Loss rate × Average loss)
When setting a 2% stop loss and a 20% take profit, a win rate of only 34% is needed to achieve positive returns. Professional traders achieve annualized returns of over 400% through strict stop-loss (average loss of 1.5%) and trend capturing (average profit of 15%).
Ultimate rule:
Single loss ≤ 2%
Annual trades ≤ 20
Win-loss ratio ≥ 3:1
70% of the time in cash waiting
The essence of the market is a probability game; smart traders use 2% risk to seize trend profits. Remember: control your losses, and profits will take care of themselves. Establish a mechanical trading system to replace emotional decision-making with discipline; this is the ultimate answer for sustained profitability.
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