If you have lost everything in Futures trading and wish to recover everything and more, please listen to me!
In futures trading, many traders ask, "Why did I get liquidated?" Often, it’s due to a lack of solid risk management and unrealistic expectations. Many believe futures trading is difficult and get overwhelmed by its high volatility. But with the right strategy, it can actually be easier than spot trading. Here’s a guide to help you understand how to trade futures effectively and avoid liquidation by following a simple approach.
Why Traders Get Liquidated
Even with strong technical analysis, chart reading, and understanding of market trends, many traders find themselves liquidated. Why? Because markets often don’t follow the traditional patterns people rely on, like “higher highs,” “higher lows,” or other standard signals. Instead, the market moves in directions that serve the big players (often called “whales”) who control significant capital.
These large players can cause sudden market fluctuations, which lead to liquidation for traders who rely solely on charts. Sometimes, they may move the market in a way that seems favorable, only to lure in more retail traders before reversing direction to maximize their profits. So, it’s essential to realize that FOMO (fear of missing out) can often trap traders, and chasing predictable patterns without strong risk management can be risky.
Futures Trading Is Not a Casino
Many people treat futures exchanges like Binance as if they’re casinos. They assume they can turn $100 into $1,000 overnight with little effort. While large gains are possible, they are rare. Consistent profits require discipline and a strategy based on caution and risk control, rather than luck.
Key to Avoiding Liquidation: Margin and Leverage Control
To avoid liquidation, focus on a simple rule: manage your margin and leverage responsibly. Here’s a breakdown of how to apply this approach.
1. Limit Trade Size to 0.5% of Your Wallet: Only use 0.5% of your total trading wallet in a single position. This reduces your exposure and lowers the chance of being forced to liquidate if the market suddenly turns against you.
2. Use a Maximum Leverage of 6x: High leverage can lead to higher gains, but it also increases your liquidation risk. Limiting leverage to 6x gives you more room to withstand market fluctuations without hitting your liquidation point.
Step-by-Step Strategy with an Example
Let’s go through a detailed example of how to manage your position to avoid liquidation.
1. Initial Trade Setup:
Assume you have a $10,000 trading wallet.
Take 0.5% of this amount ($50) and enter a long position in a well-researched coin like Bitcoin (BTC) at a price of $30,000.
Use a 6x leverage, which means you’re actually trading with $300 worth of BTC.
By following this rule, even if the market moves against you, you won’t face immediate liquidation.
2. Dollar-Cost Averaging (DCA) if Price Drops:
Suppose BTC falls from $30,000 to $28,000.
Instead of panicking, add another 1% of your wallet ($100) to your position at $28,000. This brings your total investment to $150.
Now, your average entry price adjusts closer to the new market price.
3. Rebalancing Your Position:
Let’s say BTC bounces back to $29,000, nearing your breakeven point.
At this point, remove the extra $100 (the DCA amount) to reduce your exposure and rebalance your position back to the original $50.
This improves your overall entry price and maintains your initial margin discipline.
4. Repeat DCA if Necessary:
If BTC drops again, this time to $27,000, consider adding another 1% of your wallet ($100) to your position.
With this DCA strategy, your average entry price will move closer to the current market price, lowering the distance to breakeven.
Let’s assume your average entry price after this additional DCA is now around $28,000.
5. Taking Advantage of a Bounce:
If BTC rises back to $28,000 (your new average entry price), exit the extra margin you used for the DCA, which was $200 (the two $100 increments).
This reduces your exposure back to the initial $50 and makes your entry price even more favorable.
If BTC continues to rise, any profit gained from this move would go directly to your account without risking a large liquidation due to excessive leverage or margin.
6. Exit and Profit:
If BTC eventually returns to $30,000 or higher, your initial position will now be in profit.
The DCA strategy has allowed you to withstand market volatility and hold on for a favorable exit without risking liquidation.
In this way, by controlling leverage and using small, targeted increases in your position, you maximize your resilience and allow the market to “come to you” rather than getting caught up in unpredictable moves.
Summary of Key Points
Margin Control: By limiting your initial trade to 0.5% of your wallet, you’re trading responsibly and avoiding large losses.
Leverage Discipline: Sticking to a max leverage of 6x helps you withstand market swings without hitting your liquidation point.
Strategic DCA: Adding to your position only at significant levels (e.g., strong support levels on the daily chart) brings your average entry closer to the market price, reducing the chance of losses and liquidation.
Exiting Extra Margin at Breakeven: By removing the DCA amount when the market reaches breakeven, you improve your entry point and reduce risk, making it easier to lock in profits if the market moves in your favor.
Why This Strategy Works
This method is designed to take advantage of market movements over time while minimizing risk and avoiding liquidation. Instead of relying solely on chart patterns or technical indicators, you’re focusing on margin, leverage, and patience. By controlling the urge to chase big wins and using disciplined trading practices, you can better navigate the volatile nature of futures trading.
This approach emphasizes capital preservation and sustainable growth, rather than high-risk gambling. By following these principles, you give yourself the best chance to succeed without constantly worrying about being liquidated.
IT REALLY WORKS!
