1. Understanding support and resistance levels: the cornerstone of futures trading
1.1 Definition and importance of support and resistance levels
In technical analysis, support level refers to the level at which buying power increases when the market price falls to a certain level, thus preventing the price from falling further. Pressure level refers to the level at which selling power increases when the market price rises to a certain height, thus preventing the price from rising further.
For contrarian investors, support and resistance levels are important bases for judging market trends. These two points usually represent the psychological boundaries of the long and short sides of the market and are important turning points for market prices. In contract trading, contrarian investors can use these points to formulate strategies for opening and closing positions, thereby minimizing risks and maximizing returns.
1.2 How to identify effective support and resistance levels
It is not easy to identify support and resistance levels. Effective support and resistance levels usually have the following characteristics:
Many historical tests: When the price repeatedly hovers around a certain level without breaking through, this level may be an effective support or resistance level.
Volume coordination: When approaching the support level, if there is a large volume increase, it usually means that the support level is effective; conversely, when approaching the resistance level, a large volume decrease indicates that the resistance level is effective.
Intersection of important moving averages: When prices approach key moving averages (such as the 50-day moving average and the 200-day moving average), they often form support or pressure.
When identifying support and resistance levels, contrarian investors should combine the above factors and determine the key points in contract trading through comprehensive analysis.
2. How to open a contract based on support and resistance levels?
2.1 Open long at support level: Go against the trend and follow the trend
Contrarian investors usually choose to open long (buy) contracts near the support level. The support level represents the low point of the market, and the price usually has a strong rebound momentum here. If you open a long position at this time, you can buy at a low price when the market sentiment is panic, and wait for the market sentiment to pick up and make a profit.
Open multiple strategies:
Observe price reaction: When the price approaches the support level, observe whether the price shows signs of stabilization, such as the formation of a bottom reversal pattern (such as a hammer line, morning star, etc.) in the candlestick pattern.
Open a position after confirming the signal: After confirming that the price is supported at the support level, you can gradually open a long position. It is recommended to adopt a strategy of opening positions in batches to spread the risk.
2.2 Open short at the pressure level: seize the turning point of the market
In contrast to support levels, resistance levels are ideal points for contrarian investors to open short (sell) contracts. Prices usually face strong selling pressure at resistance levels. Therefore, by opening a short position near a resistance level, you can make early arrangements in the market's optimistic sentiment and profit after the market reverses.
Short opening strategy:
Wait for reversal signals: When the price approaches the pressure level, observe whether a reversal signal appears, such as a K-line pattern with a long upper shadow or a top divergence in trend indicators (such as MACD).
Gradually establish short positions: Once the reversal signal is confirmed, you can gradually open short positions, but you should be cautious and avoid chasing highs excessively.
3. Position management: the key to controlling risks
3.1 Position management principles in contract trading
Position management in contract trading is crucial. Due to the leverage effect, holding too heavy a position may lead to huge losses. Contrarian investors should follow the following position management principles in contract trading:
Small position operation: When entering the market for the first time, it is recommended to control it within 5-10% of the total funds to avoid excessive losses due to market fluctuations.
Building positions in batches: Whether opening a long or short position, contrarian investors should adopt the method of building positions in batches and gradually increase their positions to reduce the risks brought by price fluctuations.
Dynamically adjust positions: Adjust positions in a timely manner according to market changes and account risks. If the price moves in a favorable direction, you can increase your position appropriately; if the price moves in an unfavorable direction, you should reduce or close your position in a timely manner.
4. Stop loss and take profit: the amulet of contract trading
4.1 How to set a reasonable stop loss
Stop loss is the last line of defense to protect the safety of funds. For reverse investors in contract trading, stop loss setting is particularly critical.
The basic principles of stop loss setting
In contract trading, the setting of stop loss needs to comprehensively consider the market environment, technical indicators and one's own risk tolerance. Here are some basic principles:
Combine support and resistance levels to set stop losses: Contrarian investors can set stop losses near key support or resistance levels. If the price breaks through these key points, it usually means that the trend has changed fundamentally, and timely stop losses can avoid greater losses.
Take ATR (Average True Range) as a reference: The ATR indicator reflects the volatility of the market. Contrarian investors can set stop-loss points based on ATR to match market volatility. Usually, the stop-loss point can be set at the current price minus (or plus) 1.5-2 times the ATR value.
Fixed ratio stop loss: Another simple and effective method is to set a fixed ratio stop loss. For example, set the stop loss for each transaction to 1-2% of the total account funds. Although this method is simple, it can effectively control the overall risk.
Dynamic adjustment of stop loss
Stop loss is not static. When the market environment changes, contrarian investors should dynamically adjust the stop loss position according to new market information. The following are two common ways to adjust the dynamic stop loss:
Trailing stop loss: When the market price develops in a favorable direction, contrarian investors can gradually move the stop loss up or down to lock in part of the profit and reduce the risk. For example, after the price breaks through a key resistance level, the stop loss level can be moved up to below the resistance level to ensure that part of the profit can be retained once the market reverses.
Adjustment based on new highs and new lows: If the market continues to make new highs or new lows after the contrarian investor opens a position, the stop loss position can be adjusted based on these new highs and new lows. For example, when the price continues to break new highs in the direction expected by the contrarian investor, the stop loss can be set below the previous low.
5. Take Profit: The Art of Locking in Profits
Basic strategy for take profit setting
1. Take profit at key resistance or support levels
In contract trading, contrarian investors usually choose to stop profit when approaching important pressure or support levels. Pressure and support levels are the psychological expectation points of both long and short parties in the market. When the price approaches these points, the market tends to fluctuate or reverse. Therefore, stopping profit when approaching these points can effectively avoid sharp price fluctuations and prevent profit taking.
For example, if you open a long position near a support level, you can consider taking profit when the price approaches the upper resistance level. Because at the resistance level, the seller's power may increase and the momentum of price increase may weaken. Correspondingly, if you open a short position near a resistance level, taking profit when the price approaches the lower support level is a solid choice.
2. Take Profit Based on Technical Indicators
Technical indicators can provide important references for stop-profit. For example, using technical indicators such as the relative strength index (RSI), moving average (MA) or Bollinger bands can help determine whether the market is overbought or oversold, thereby determining the stop-profit point.
RSI stop profit: When RSI enters the overbought area (usually above 70), contrarian investors can consider gradually taking profits, because the market may face callback pressure. On the contrary, when RSI enters the oversold area (usually below 30), if you hold a short position, you can gradually take profits to prevent the market from rebounding.
Moving average stop profit: If the price continues to run above a certain moving average, contrarian investors can set the stop profit below the moving average. When the price falls below the moving average, the stop profit operation can be executed.
Bollinger Bands Take Profit: The upper and lower tracks of the Bollinger Bands can be used as reference points for take profit. If the price is running near the upper track, contrarian investors can consider taking profit to lock in profits; if the price is running near the lower track and you hold a short position, you should also consider taking profit.
3. Dynamic Take Profit: Use of Tracking Take Profit
Trailing stop profit is a strategy that dynamically adjusts the stop profit point, aiming to lock in more profits while preventing losses caused by market pullbacks. Trailing stop profit can help contrarian investors gradually move up or down the stop profit point when the market continues to develop in a favorable direction, thereby allowing profits to grow as much as possible without losing most of the profits.
For example, when the price is rising, you can set the take profit point to a certain percentage or point away from the current price. As the price continues to rise, the take profit point will automatically move up. If the market suddenly reverses and reaches your take profit point, the trade will be automatically closed, ensuring that the profits you have made will not be eroded by the sharp fluctuations in the market.
4. Batch profit-taking strategy
Taking profits in batches is another effective way to lock in profits in the market. Contrarian investors can close their positions in batches at different price targets, so that even if the market suddenly reverses, they can still keep some profits.
For example, if you open a long position and the market rises as expected, you can partially close the position when it approaches the first resistance level to lock in some profits. Then, move the take-profit point up and wait for the market to rise further before closing the position at the next target level. By taking profits in batches, you can get profits at different price levels even if the market fails to reach the highest point.
Contract trading is a high-risk, high-return investment method. By leveraging the leverage effect, investors can achieve excess returns in market fluctuations. However, contract trading also comes with huge risks, especially in the cryptocurrency market, where prices fluctuate violently and the slightest carelessness can lead to serious losses.
Investors need to have a high level of market insight, strict risk control capabilities and keen judgment of market sentiment.
Only in this way can we achieve stable returns in a high-risk market.
