Contract trading is a very popular way to trade in the cryptocurrency market, which allows investors to use leverage, go long or short to amplify potential gains. However, contract trading is risky, and it is important for novices to master some key skills and strategies. The following is an article about contract trading skills in the cryptocurrency market to help you be more calm and increase your winning rate when trading contracts.

What is contract trading?

Contract trading refers to trading through buying and selling contracts instead of actual cryptocurrencies. Traders can choose to go long or short to profit from market price fluctuations. Compared with spot trading, the characteristics of contract trading are:

Leverage mechanism: Small amounts of capital can be used to magnify investment results, such as 10x or 20x leverage, allowing investors to obtain higher returns with less capital, but at the same time they also face greater risks.

Two-way trading: Whether the market goes up or down, you can make a profit by going long or short.

Delivery/perpetual contracts: There are two types of contracts: delivery upon expiration and perpetual contracts. Perpetual contracts do not have a fixed expiration date and can be held indefinitely.

Basic skills of contract trading

Control leverage ratio to avoid excessive risk. Although high leverage can magnify returns, it also increases the risk of liquidation. Especially when the market fluctuates violently, high leverage may lead to forced liquidation (i.e. liquidation) in a short period of time. For novices, it is recommended to start with low leverage (such as 3x, 5x), gradually accumulate experience, and avoid unnecessary losses due to excessive leverage.

Set up stop-loss and stop-profit to control emotions. Stop-loss and stop-profit are crucial tools in contract trading. Stop-loss can help you reduce losses when the market trend is unfavorable, and stop-profit ensures that you can cash in profits in time. Market sentiment often influences traders' judgments, and the setting of stop-loss and stop-profit can help you avoid emotional trading. For example, when you are long, you can set a reasonable stop-loss point, and automatically close the position when the price is lower than this point to avoid greater losses.

Stop loss advice: Based on your risk tolerance, set the stop loss at a price drop of 5% to 10%.

Profit-taking advice: When the market fluctuates violently, set the profit-taking at around 10%-20% of the expected return to ensure that profits are locked in in time when they are profitable.

Split positions to avoid all-or-nothing Don't concentrate all your funds on one transaction. Split positions can reduce investment risks and improve fund management efficiency. For example, if you have 1,000 USDT, it is recommended to divide the funds into multiple transactions, and use only 10%-20% of the funds for contract operations each time. In this way, even if one of the transactions suffers a large loss, you still have other positions to make up for the loss or continue trading.

Do a good job of fund management and use margin reasonably. In contract trading, margin management is very critical. Make sure that there is enough money in your account to cope with market fluctuations and avoid forced liquidation due to insufficient funds. When using leverage, try to maintain sufficient margin to avoid the risk of liquidation. It is generally recommended to use no more than 20% of the total funds to participate in contract trading to ensure that there is sufficient buffer space to cope with market fluctuations.

Choose the market trend and follow the trend. The core of contract trading is to judge the market direction. Whether it is long or short, choosing the direction consistent with the general trend will help increase the probability of profit. Usually, it is better to go long in an upward trend and short in a downward trend. It is not recommended to trade frequently in a volatile market. You can use technical analysis (such as moving averages, relative strength index RSI, etc.) to assist in judging market trends and avoid counter-trend operations.

Wait patiently for the best entry time Don't rush into the market. Many traders regret missing the lows or highs of the price and end up making emotional trading decisions. Be patient and wait for the price to pull back or rebound to a key position before making a decision. You can automate the transaction by setting a limit order at a predetermined price, so you don't have to keep watching the market and miss a good entry point.

Advanced Contract Trading Skills

Using technical indicators to analyze the market In contract trading, technical analysis is an important decision-making tool. The following are several common technical indicators:

Moving Average (MA): Determine the market trend by observing the crossover of the short-term and long-term moving averages. Generally speaking, when the short-term moving average breaks through the long-term moving average, it is a signal to go long; otherwise, it is a signal to go short.

Relative Strength Index (RSI): Used to measure whether the market is overbought or oversold. RSI values ​​above 70 indicate overbought, which may be an opportunity to short; below 30 indicates oversold, which may be an opportunity to go long.

Bollinger Bands: Determine whether the market is in a high volatility period by analyzing the range of price fluctuations. When the price touches the upper band, it is usually an overbought signal; when it touches the lower band, it may be an oversold signal.

Hedging to reduce risk Hedging is a strategy to reduce risk by holding contracts in opposite directions at the same time. For example, you can go long on BTC contracts in an upward trend while shorting other highly correlated cryptocurrencies (such as ETH) to maintain the stability of returns in different market fluctuations. This strategy can effectively reduce the risks brought by market fluctuations.

News and Market Sentiment Analysis The cryptocurrency market is greatly affected by global news and market sentiment. Major policy changes, project progress, industry trends, etc. can cause huge fluctuations in the market. Contract traders should always pay attention to market dynamics and use relevant information to adjust their strategies. For example, when a certain cryptocurrency is about to have major good news released, it may be a good choice to go long on the contract of that currency.

Risk Management

Avoid emotional trading. In contract trading, the market fluctuates violently, which can easily lead to emotional operations. Stay calm, strictly follow the trading plan, and avoid making impulsive decisions due to short-term market fluctuations or psychological pressure.

Use leverage with caution. Leverage can magnify gains, but it can also magnify losses. Especially in the highly volatile cryptocurrency market, high leverage can make your account more vulnerable to liquidation. Therefore, be sure to choose a reasonable leverage ratio and control your trading funds.

Summarize

Contract trading provides higher profit potential for cryptocurrency investors, but it also comes with greater risks. Through reasonable leverage management, capital allocation, technical analysis and emotional control, traders can obtain considerable returns in volatile markets.