Everyone enters the crypto world with the same intention, and there's no doubt about that. If you are just here to pass time, then this place is not for you. We come to the crypto space to gain more profit, to provide a better life for our families. If technical skills in crypto are the prerequisite for earning, then the strict rules that need to be adhered to are the keys to long-term profitability.
If you want to treat crypto trading as a secondary source of income, wish to share in the profits, and are willing to invest time in learning and growing, then don't miss this article. Read it carefully; each point contains the essence of the stock market. Whether it's a bull market or a bear market, these rules can certainly help you!
[First Rule] Position Management.
This is crucial! If you haven't realized the importance of position management, it means you haven't left the beginner phase yet. You are still in a pure novice stage! If you're interested, you can take a look at it again. Of course, I will also simplify it, providing what I believe to be the simplest and most effective method! To put it simply, position management determines how long you can survive in the crypto space.
Let me clarify: before you open a contract, you must have thought about where to place your stop loss, right? (Don't tell me you haven't even considered where to place your stop loss before opening a contract.) The size of your position depends on where your stop loss is set. Think about whether you can psychologically bear the loss if the stop loss is hit. If you can't bear it, it means your position is too large, and you need to reduce it! If you can bear it, it means your position is just right! It's particularly easy to calculate this way; you don't need to worry about what percentage of the position to use, which is really hard to calculate. It takes time, and many times, the best entry point is a matter of that very moment!
[Second Rule] Develop good trading habits, which include several points:
A. Always set a stop loss when opening a position; this is an ironclad rule of contract trading. If you can't follow this rule, I suggest you just give your money to the market makers to save yourself the trouble! Never entertain the illusion of holding a losing position. Even if you manage to recover from holding 9 out of 10 times, you should not feel proud. Just one time of holding could wipe you out! Such people actually make up the majority!
B. Maintain a good mindset. When trading, never let emotions take over. Don't think that after a loss, you need to make it back immediately by trading frequently, as this is very dangerous. I've seen too many people lose money and then get emotional, trying to recover their losses with reckless trades, only to end up with nothing overnight. This goes back to what I mentioned earlier: when you open a position, you should already know where your stop loss is. This way, you know your potential loss in advance. So if your stop loss is hit, relax your mindset, maintain a good attitude, and look for better opportunities to trade again later.
C. Don't jump to conclusions. If you understand some technical analysis, that's best. If you don't, then you should avoid jumping to conclusions even more. I've encountered too many people who do this: they believe it will drop, thinking that the market makers are intentionally pushing it up to squeeze shorts, or that the main force is holding it up to prevent it from dropping. They believe it will rise, and no matter what, they are convinced it will go up, holding their positions, thinking it has to rise with so much positive news. Right now, they are just paying attention to intentional drops, causing long positions to explode. This is a typical case of jumping to conclusions, to put it bluntly, it's stubbornness; they refuse to admit defeat, and the market changes rapidly. You can't just say, 'I think, I feel, I believe, I am convinced,' etc. When the market changes, we need to adjust our mindset promptly! If you're wrong, admit it and stand tall!
[Third Rule] Pay attention to the risk-reward ratio in contract trading!
Many people lack the concept of risk-reward ratio. If the first two points are key factors for survival in the crypto space, then the risk-reward ratio determines whether you can make big money in crypto. Many people trade contracts blindly, without forming a system, just relying on gut feelings, and they leave no exit strategies, randomly making trades.
For me, the decision to trade depends on two things.
1. Through technical analysis, if I have a good sense of whether the market will rise or fall, then I trade.
2. Even if my technical analysis isn't very certain, for example, I see potential for a rise but I'm not very confident, if the current price level is good, and I predict the downside is limited while the upside is significant with a high risk-reward ratio, then I can still trade.
These two conditions can be satisfied independently, but it's best if both conditions can be met simultaneously. Generally, I look for trades with a risk-reward ratio starting at 1:3. For example, some time ago, I opened a long position that I wasn't particularly confident about from a technical analysis standpoint, maybe a 70% confidence level. But I saw that the risk-reward ratio was very high, so I went for it. By the time I exited, the risk-reward ratio reached 1:7, meaning I earned 7 times my investment.
So later, if I use the same position to trade other contracts, I can be wrong 7 times in a row without losing my principal, significantly increasing my margin for error. This means my mindset for trading will be better, and with a better mindset, my accuracy in trading will improve. If out of those 7 trades, I get just one right, then I earn again, and if I get two right, I earn even more. Moreover, my accuracy in market analysis is still very high.
Therefore, the risk-reward ratio must be taken seriously; it is fundamental to whether you can make big money in crypto. Many people do the opposite: they take small profits and stubbornly hold onto losses. Even if you're right directionally, you won't make money. If you say you're not losing, who is?