The first point is: What is a contract?
Contract trading refers to the agreement between buyers and sellers to trade a certain quantity of an asset at a specified price at a future time. In simple terms, it means you believe a certain coin will rise or fall by a specific future time, choosing to buy long or sell short contracts to gain from price increases or decreases. Many newcomers enter the market without understanding what contracts are and start making reckless trades. If you win, you’re lucky; if you lose, that’s just your fate.
The second point is to recognize your own 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 a big win and choose to trade contracts with leverage. Here, I must remind you that I personally feel that beginners should not rush into contract trading. The volatility in the crypto market is enormous, and a small mistake can lead to losses. Most people starting to trade cryptocurrencies have low psychological tolerance; once they incur losses, they can fall into extreme self-blame and negative emotions. If you have already set your risk tolerance and are willing to use a part of your assets to try, then please read on.
The third point is controlling the overall market.
Many new contract traders easily fall into the misconception that this is just about buying high or low, but they overlook a very serious detail: controlling the overall market conditions, which we can also call judgment. For instance, insisting on buying in a bad overall market can easily lead to losses. Before trading contracts, please have your own judgment on the overall market. We can base this on the current state of the cryptocurrency market, recent reports on the cryptocurrencies you want to trade, and predictions about their future price ranges. Specifically, I recommend downloading market analysis software like Feixiaohao, Aicoin, or CoinMarketCap for reference.
The fourth point is the leverage multiplier for contracts.
The most exciting part of playing contracts is determining whether a coin will rise or fall in the future. You can choose an appropriate leverage ratio to increase your returns. For example, leverage risk: this is easy to understand; if you use 10x leverage to open a position and the price drops by 2%, your loss is magnified by 10 times to 20%. Additionally, these trades don’t fluctuate as small as stocks; a 1% or 2% price change is very random. It’s possible that the major player or operator is very happy today and suddenly sells a lot, causing the price to drop significantly. Therefore, beginners must have a corresponding understanding of this leverage risk. However, beginners should not rush to use high leverage; the higher the leverage, the greater the risk. A slight fluctuation could lead to liquidation of your position. It is recommended for beginners to keep their leverage below 10x when trading contracts.
The fifth point is the misjudgment in decision-making.
Constantly walking by the river, how can you avoid getting your shoes wet? Most cryptocurrency traders have a bullish mindset. Sometimes when we misjudge and the market starts to decline, what should we do? Here we need to understand the significance of stop-loss. Many newcomers may ask: Isn’t stop-loss just about losing money? Originally, we only had floating losses; if we really stop-loss, we incur actual losses. However, this understanding is too superficial. There’s a good analogy online: a stop-loss is like a seatbelt in a car. Most of the time, it seems useless. Often when you stop-loss, a significant price surge occurs. Some people stop-loss during fluctuations, only to find themselves stopping out again. In reality, stop-loss is meant to prevent you from losing too much money.
The sixth point is the reasons for losses during operations.
(1) Never bow down; pledge to hold your position.
Most newcomers choose to hold on! Don't back down! Maybe it will come back in a while. Often, this holding mentality is akin to gambling. If you’re lucky and hold on, it works out; naturally, you’ll feel that holding is always right. But then suddenly, you might face liquidation. For example, recently, due to BM's negative comments on EOS, it was originally just a slight correction. Many people thought it was fine to keep holding, but the uncontrollable fermentation of the comments led the operators to smash the market, resulting in many liquidations. This is the devastating impact of black swan events on holding positions.
(2) Unable to resist temptation, continually adding to positions.
Sometimes after opening a position, I realize my judgment was correct, and the price has risen by a few or even several percent. I can't resist the temptation and rush to add to my position, going from hundreds to thousands. If I'm lucky and follow the trend, the price keeps rising, and my additional positions help me make quite a bit of money. However, this risk is immense; sometimes, continuously adding to my position can actually increase my exposure, and during a rebound, I could easily lose more or even face liquidation. Here, I suggest to beginners that when your contract is already profitable, you can add to your position gradually. In losing contracts, definitely do not add margin; learn to stop-loss. It’s better to cut your losses and reopen a position than to add to a losing contract.
The seventh point is how to reduce your risks.
(1) Set your risk tolerance level.
For example, if you have a capital of 10,000 for trading and can tolerate a loss of 5,000 on contracts, you can use this 5,000 as your contract fund. If it exceeds your loss tolerance, stop trading contracts.
(2) Spend more time finding a feel in spot trading; after all, spot trading won't let you lose everything at once.
Find your feel in spot trading; know when is the best time to buy and sell. Cultivate your psychological endurance for trading cryptocurrencies. After all, many people feel heartbroken even if they lose a little.
(3) Don't think of yourself as a trading master just because you are making profits; have a deeper understanding of the market.
You should know that even the best traders have faced liquidation. Who among the big shots on Weibo hasn’t? Countless people face liquidation daily, and the amounts can be significant. Desire can make people forget about risk, become greedy, and often lose their direction, leading to even greater losses.
(4) Develop a plan.
If you take out 5000 to trade, you can split it into 10 parts, using 500 for each operation. This way, at least 1 or 2 of the 10 trades will be profitable. If you can't make a profit in 1 or 2 trades, I suggest you start with spot trading because your trading fundamentals and luck may be lacking. This way, even if you make a wrong trading decision, your losses won't be significant, and I'll discuss stop-loss strategies later. Position control determines your profitability; making money is simply about minimizing your trading losses and maximizing your profits.
(5) Control your own position well.
When the trend is unclear, take a small position. Even if you lose, it's a small amount; when a trending opportunity arises, operate with half or full positions. This is what we call a one-sided market, and at this time you can take a larger position because we want to earn big from this part.
(6) Don’t use too much leverage in contracts; learn to take breaks.
As mentioned earlier, the higher the multiplier, the greater your risk. The lower your margin, the more likely you are to face liquidation with even slight fluctuations. Additionally, transaction fees can be enormous. Once liquidation or massive losses occur, take a break before reinvesting in the market.
Contract trading is never gambling; manage your position well, stay calm, and avoid greed to make steady profits!
1. Risk management.
Position control: Invest only a small portion of your funds in each trade to avoid heavy positions and reduce the impact of a single trade on overall capital.
Stop-loss setting: Set stop-loss points in advance to prevent losses from expanding and protect your capital.
2. Emotional management.
Don't rush: Avoid impulsive trading and patiently wait for the right entry opportunity.
Don't be greedy: Set reasonable profit targets, take profits in time, and avoid missing exit opportunities due to greed.
Don't panic: Stay calm in the face of market fluctuations, execute trades according to plan, and avoid emotional trading.
3. Strategy and planning.
Trading plan: Develop a clear trading plan that includes entry, exit, and risk management strategies, and strictly adhere to it.
Diverse strategies: Combine different strategies such as trend following and arbitrage to spread risk.
4. Continuous learning.
Market analysis: Continuously learn technical and fundamental analysis to improve judgment.
Review and summarize: Regularly review trading records, identify problems, and improve strategies.
5. Tool usage.
Leverage caution: Use leverage responsibly to avoid excessively magnifying risk.
Automation tools: Utilize tools like take-profit and stop-loss orders to reduce emotional interference.
6. Mindset adjustment.
Long-term perspective: Focus on long-term stable profits rather than short-term windfalls.
Accept losses: Losses are part of trading; maintain a calm mindset and avoid letting losses affect your attitude.
Summary.
Contract trading requires strict discipline and a good mindset. By effectively managing risks, controlling emotions, and continuously learning, you can improve your trading success rate and achieve stable profits.
Why do most people lose when trading contracts?
1. Can't understand candlestick charts and trends.
2. Can't understand the news.
3. Wanting to chase the market as soon as you see it, fearing to miss out.
4. Wanting to earn more when you have already made some, mindless greed.
5. Selling to break even or running away with a small profit.
6. The operator is definitely watching my orders.
If you have the above mentality, it's not suitable for you to open positions.
Feeding mode: Provide entry points, staggered entry points, and stop-loss points; even beginners can understand.
*Strictly follow the strategy to open positions; making money is the key to longevity. Losing money brings no benefits to me.
Currently, in a bull market, opportunities arise every day, and we share passwords.