From personal experience
The market is not your grandmother. #futurestradingtips
My crypto trading journey began during the
pandemic when my friend introduced me to Binance.
I started by spot trading then after mastering it and
coming up with a trading strategy that suited me best, I moved to margin
trading before finally gathering the courage to move to futures trading.
When I finally figured out futures
trading, I found myself wishing I had ventured into it much earlier, especially
during the pandemic-fueled bull market. I would have made a killing!
As risky as it is, I have found futures
trading to be easier than spot or margin trading. It puts you more in control
and if you know what you are doing, you can make some money much faster than
when trading spot or margin. This is because of the use of leverage where you
make money using other people’s funds aka borrowed funds. Of course, you can
lose much more money much faster too.
The golden rule of crypto trading is
knowing that Bitcoin is king and that many coins if not all move in its
direction. When Bitcoin is rising many coins will rise too. When it’s falling,
many coins will fall too, and not just fall but deeper than Bitcoin.
Market crashes happen quickly and sharply.
And when Bitcoin crashes many other coins quickly follow suit catching many
traders who are using leverage unawares leading to devastating losses. Those
trading futures are the biggest losers as they are using mainly high leverage
and without proper loss mitigation plans, they get liquidated.
The core goal when trading futures is not
so much to make profits but to ensure that you do not lose your capital. Every
smart and experienced trader will tell you this.
To avoid being liquidated when trading
futures I came up with a few tips for myself
Today, I’m sharing them below.
1. Use low margins
As lucrative as it might be to use a 50x
margin, try to control your greed and need for quick profits and use 10x - 20x.
This way if a trade moves against you, you are much safer from a liquidation.
And if you insist on using high margins
like 25x-50x or more, make sure you have funds in your futures account to
support your trades by having a low margin ratio.
For example, if you are trading a $500
account and insist on using a 50x margin, make sure you only have a small
percentage of your $500 in a trade, let’s assume $100 so that the other $400 is
left to support your $100 in case the market moves against you. This way you
are much safer from a potential liquidation.
2. Support your assets
Whether you are using high margins or low
margins, make sure to support your trades.
If you have $200 to trade, place in $100
or less and leave the other $100 as support for your positions.
This is in support of the first point.
The safest bet is to use low margins while
also supporting your assets.
Say when you have a $500 account, trade
$100 with a 15x margin. Here when combined with tact and a good trading
strategy, unless in extreme bear markets, it is highly unlikely you could get
liquidated when the market suddenly moves against you as your asset is well
supported.
3. Learn technical analysis
You cannot be a successful trader if you
do not have a good understanding of technical analysis.
And you do not want to be in a short trade
when it is longing or vice versa. As these are potential profits you could be
locking in and losses you could be avoiding.
While trading shares similarities with
gambling, good technical analysis helps one make informed decisions when
getting in and out of trades and this is the core difference between a trader
and a gambler.
Know how to read candle sticks, trade
indicators, volumes, etc. This way, you will know when to enter a good trade,
when to long or to short when to exit profitably, and how to avoid liquidation.
4. Avoid using trade signals
This goes with the previous point.
People sending trade signals are not
always doing it for altruistic reasons. Some of them border on pump and dump
schemes.
Learning technical analysis helps you
avoid being a pawn in somebody else’s scheme and helps you understand and
evaluate where the trade signal you received is viable if you insist on using
them.
5. Begin to trade when volumes are good
Psychology is very important when trading.
And just like a farmer’s market, not all times are good to buy and sell crypto.
To avoid being liquidated, trade when
volumes are good. This could be at the beginning of a new trading day on your
platform of choice or when there is a good spike in trade volumes such as when
it’s the beginning of a trading day in other markets globally.
6. Avoid assets that are already at peak
Traders trade support and resistance. This
means that once an asset reaches a peak in a certain time frame, it is bound to
fall.
To avoid getting liquidated, avoid trading
an asset that is already at its peak if you do not intend to short. If it has
been rising for a couple of hours, consider shorting it using your technical
analysis instead of entering into a long trade.
If you are unsure of it, just look for
another less risky asset. They are like buses, after all, another good one is
usually rallying and will be coming next.
7. Take profits from time to time
Crypto markets are highly volatile. As
quickly as they rise, they crash even faster because fear is a stronger human
emotion than greed.
It is therefore not advisable to hold
crypto when trading futures as a crash could leave you with nothing after a
liquidation.
If you insist on holding, make sure as we
discussed in the first points that your assets are well supported and that you
are using low margins.
8. Diversify your trades
Don’t just insist on trading longs or
shorts or meme coins, AI coins, etc.
A good trader knows how to diversify
trades to take advantage of different market conditions. This way if it’s
lucrative to short then you can short and if longs are more profitable then you
can long.
Also, if meme coins are going up while AI
coins are going down, you can trade both accordingly to profit from both of
them in their respective market directions.
And if one direction goes against you,
then the other one you were right on could support your trades and protect you
from liquidation.
This requires skill and tact and should be
based on your trading strategy most importantly.
9. Avoid averaging out
While dollar cost averaging is encouraged
when you are holding core assets such as Bitcoin, avoid dollar cost averaging
when trading futures especially when the market has moved against you and you
are in a losing trade.
This is because when attempting to average
out in a losing trade you bring up your liquidation price increasing your
chances of getting liquidated.
Unless you are very tactful and can spot a
good reversal entry point avoid trying to average out, especially in a losing
trade. Instead, support your assets by reducing your margin ratio right from
the start when entering a trade or by adding more funds if you can.
Adding more funds might not work in
extreme market conditions though and that’s where having a stop loss comes in.
10. Have a stop-loss
Based on your trading strategy, you need
to know how much loss you can take in a trade.
You also need to understand technical
analysis well enough to see if you can hold on a little longer for a market
rebound.
But in extreme market conditions, and when
you cannot support your asset by reducing your margin ratio, having a stop loss
could help you avoid further losses and liquidation.
11. Uses cross mode and isolated mode wisely
When trading cross mode, all the different
positions you are holding are connected and can support each other. If one is
going down while others are going up, the ones going up support the one going
down protecting you from a potential liquidation.
If all of them are going down, your risk
of liquidation increases as your margin ratio gets reduced.
In isolated mode, however, every asset
stands on its own and is not affected by the price movements of the others.
Based on your trading strategy and
personal preferences, know which mode to use to avoid liquidation.
12. Use multi-asset mode and single mode wisely
Again,
based on your trading strategy and personal preferences, know how to use these
different modes wisely.
Remember too that the rules and
functionalities may differ on different trading platforms.
13. Use hedge mode or one-way mode wisely
I prefer to use hedge mode as when the market moves
against me, I can quickly enter a trade in the opposite direction to become
profitable and support my other losing trade of the same symbol.
This also helps me reduce my margin ratio
when I open the opposite position with less margin as doing this averages out
the margin levels, reducing my potential losses if I don’t have a stop loss in
place and overall protecting me from a potential liquidation.
13. Have a trading strategy
You cannot just jump into the market
without knowing what your trading strategy is.
You need to know how much of your asset
you will have in a trade when you begin to trade when you stop to trade, your
targeted profits in a trade or the day, etc.
The best trading strategy is the one best
suited to an individual trader’s needs. Not having a proper trading strategy
harbours decision making especially when entering or exiting a trade which
could lead up to a liquidation.
Having the discipline to stick to your
trading strategy and the tact to know when to tweak it while in a trade is also
key.
14. Have a sizable account
Forget what they say. Size does matter!
Trading a very small account could cause
you to get liquidated as you make desperate attempts to grow it tampering with
your decision-making. And trading a very large account could lead to
devastating losses when the market goes against you.
Have a sizable account. One that can help
you make a good profit while also not leading to devastating losses.
For example, trading a $5 account could
lead you to use high margin ratios as you chase good profits which if you make
the wrong decision could lead to a liquidation.
Having a $1000 account and trading $200
while the rest supports your asset could give you the luxury of using low
margins while making considerable profits.
Of course, what is considered little or a
lot of money is different to different people, but the key point to note is to
trade a sizable account based on your capabilities, needs, and trading
strategy. One that is not too large that you end up losing lots of money and
one that’s not too small keeping you in an agonizing loop.
So what to do when facing a potential
liquidation?
Remember prevention is better than cure
and understanding the points above, tailoring them to your specific situation
and then following them accordingly could help you avoid being in a situation
where you could get liquidated.
But because the market is not anyone’s
grandmother and sometimes bad things happen when you enter a trade that quickly
moves against you, it is recommended that you add funds into your futures
account to protect your asset.
Hopefully in a correction, the market will
bounce back or the trend will reverse and you will be profitable.
You could also reduce your position by
selling some of your assets. This reduces your margin, improves your margin
ratio, and protects you from liquidation.
You will take in a loss here, but having
the tact to do it early enough will prevent bigger losses. Hopefully, the trend
could reverse so well that you end up being very profitable.
This post contains
the personal experiences and opinions of the author. It is intended for
guidance purposes only and should not be taken as professional advice. Please
consult a certified professional when in need.