Non-liquidation strategy in futures trading: Why even the best traders face liquidation
...How to prevent this Understanding why liquidation occurs despite accurate analysis: Traders, even those skilled in technical analysis, market prediction, and accurate chart reading, are still susceptible to liquidation. This is due to many factors beyond typical market predictions: Market deviation from technical indicators: The market does not always adhere to established technical chart patterns, trend lines, or support and resistance levels. The influence of emotions and large investors in the market: Volatility is often influenced by FOMO (fear of missing out) and orchestrated by influential traders or 'whales,' leading to sudden volatility. Strategic manipulation: The market often moves in a way that aligns with general sentiment, sometimes synchronized with analysis to build confidence among traders, but quickly reverses to catch them off guard. The psychological impact of technical patterns: Technical indicators function more as psychological guidelines rather than absolute roadmaps, meaning they can mislead traders into a false sense of security. The reality of trading Binance futures: For many, trading futures contracts on platforms like Binance feels like a gamble, driven by the desire to turn small investments into large profits in a short period. While this potential exists, each trade carries its own risks and is by no means a guaranteed profit. Sustainable success in futures trading relies on strategically managing margins and using leverage cautiously. Key steps to prevent liquidation:
1. Conservative capital allocation: Do not commit more than 0.5% of your total portfolio to a single trade and limit your leverage to a maximum of 6x.
2. Choose stable assets: Start long positions in established and reliable assets.
3. Implement DCA strategy: If the asset price drops, apply Dollar Cost Averaging (DCA) technique by using only 1% of your available portfolio for additional entries.
4. Apply a non-liquidation mindset: Adjust your entry price with each DCA addition to maintain a breakeven or near breakeven position.
5. Wisely exit additional margins: When the market price returns to the price you entered, withdraw any additional margins used during DCA to streamline your position.
6. Consistent reapplication: If the price drops again, reintroduce DCA entries strictly at support levels within a day. By adhering to this disciplined approach, you can increase the likelihood of exiting profitable trades while protecting your position from the risk of liquidation as market conditions change.