Understanding Liquidations and How to Prevent Them

In the last 100 minutes, the cryptocurrency market witnessed liquidations totaling $275,000,000. Why does this happen? The primary reason is that many traders lack the skills and knowledge required for successful trading. They often follow social media influencers on platforms like Instagram, TikTok, or YouTube, who flaunt massive profits, believing they can replicate the same results without a clear plan.

Here’s the harsh truth: those influencers likely have a well-defined strategy, including precise entry and exit points. Unfortunately, most new traders dive into the market blindly, chasing quick gains. This lack of preparation and understanding leads to costly errors, ultimately resulting in widespread liquidations.

How to Protect Yourself from Liquidation:

1. Secure Profits Gradually: When the first take-profit (TP-1) target is reached, lock in some gains. Waiting for every target to be hit is risky—partial profits help you safeguard what you've earned while staying in the game.

2. Practice Effective Risk Management: Never over-leverage or over-trade. For example, if your portfolio is $200, limit each trade to 5-10% of your funds. With just 2-3 active trades, you can steadily grow your account without exposing yourself to unnecessary risks.

3. Focus on Patience and Consistency: Trading is not about gambling. It’s about making well-calculated decisions. Consistent, smaller profits are far better than chasing unrealistic returns through impulsive trades.

The Importance of Patience:

Think about it—when you work a job, you wait 30 days for your paycheck. Why not apply the same patience to trading? If you gamble away your capital today, you’ll have nothing left to trade with tomorrow. Safeguarding your funds is the first rule of trading survival.

Stop-Loss: Your Trading Lifeline

One of the biggest mistakes traders make is holding onto losing positions, hoping for a reversal, while quickly closing profitable trades out of fear. This mindset is flawed and can lead to significant losses.

If your trade goes against you, accept a small loss and move on. It's far better than allowing it to snowball into a devastating blow to your account. Always use stop-losses to limit potential losses and protect your capital.

Final Takeaway:

Trading isn’t about luck or quick wins—it’s about making calculated, disciplined decisions. If you’re not willing to commit to proper risk management, patience, and discipline, trading may not be the right path for you. Take the time to educate yourself, manage your trades wisely, and focus on building a secure financial future. Remember, safeguarding your capital today ensures you have opportunities to trade tomorrow. Stay safe and trade smart.

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