How to Prevent It
Understanding Why Liquidation Happens Despite Spot-On Analysis:
Traders, even those with exceptional skills in technical analysis, market forecasting, and precise chart reading, are still susceptible to liquidation. This is due to several factors that extend beyond conventional market predictions:
Market Deviations from Technical Indicators: The market doesn't always comply with expected technical chart patterns, trendlines, or established support and resistance levels.
Influence of Emotions and Large Market Players: Movements are frequently influenced by FOMO (fear of missing out) and orchestrated by influential traders or “whales,” leading to unexpected volatility.
Strategic Manipulations: The market often moves in a manner that aligns with collective sentiment, at times syncing with analysis to build confidence among traders, but quickly reversing to catch them off-guard.
Psychological Influence of Technical Patterns: Technical indicators act more as a psychological guide than an absolute roadmap, meaning they can mislead traders into a false sense of security.
The Reality Behind Binance Futures Trading:
For many, trading futures on platforms like Binance resembles a gamble, driven by aspirations of turning small investments into substantial profit in a short timeframe. While this potential exists, each trade carries its own risk and is far from a guaranteed windfall. Sustainable success in futures trading relies on strategic margin management and prudent leverage use.
The Crucial Steps to Prevent Liquidation:
1. Conservative Capital Allocation: Commit no more than 0.5% of your total portfolio to a single trade and limit your leverage to a maximum of 6x.
2. Choosing Stable Assets: Initiate long positions in well-established and reliable assets.
3. Implementing a DCA Strategy: If the asset's price declines, apply a Dollar-Cost Averaging (DCA) technique by using only 1% of your available portfolio for additional entries.
4. Adopting a Zero Liquidation Mindset: Adjust your entry price with each DCA addition to maintain a break-even or near break-even position.
5. Exiting Extra Margins Wisely: Once the market price returns to your entry level, strategically withdraw any added margin used in the DCA process to streamline your position.
6. Consistent Reapplication: If prices fall again, reintroduce DCA entries strictly at one-day support levels.
By following this disciplined approach, you can increase your likelihood of exiting trades at a profit while protecting your positions from the dangers of liquidation as market conditions evolve.
