Behind high leverage is an abyss; I've seen too many people go to zero overnight.
Many people ask me why I can survive in the crypto space for so long and do quite well. My answer is simple: stay away from contracts and stick to your own trading system.
Last year, I witnessed a friend's story: he turned $5,000 in principal into $170,000 in just a few days using 75x leverage during a small bull market. In excitement, he started fantasizing about financial freedom, but on the night of the crash on May 19, not only did his profits evaporate, but he also owed the platform over $500,000. All of this happened in just a few hours.
Such stories are numerous in the cryptocurrency market. Data shows that on May 19, 2021, 735,000 people were liquidated, with the largest single liquidation amount reaching 67 million dollars.
01 The dangerous essence of contract trading
Contract trading in the cryptocurrency market, especially high-leverage contracts, is essentially an unequal game. Ordinary traders may think they are competing against the market, but in reality, your opponent is often the trading platform itself.
Industry insiders have revealed: 'Some platforms lure investors into participating in high-leverage investments while secretly manipulating prices.' When you choose 100x leverage, it means that if the price moves in the opposite direction by just 1%, you could be forcibly liquidated. In a market like Bitcoin where daily fluctuations of 50% are normal, a 1% fluctuation is virtually negligible.
What’s even more terrifying is that many exchanges have 'spike' situations. For example, if you see a buy order for 3000 dollars, and then a 'spike' drops the price by 1000 dollars, you might get liquidated without any opportunity for an exit in just a minute or two.
I have seen too many traders who correctly judge the big direction but are forced to liquidate due to a brief 'spike', missing the subsequent rebound. This sense of defeat can destroy a person's psychological defenses.
02 Core principles of my trading system
After years of exploration, I have established a relatively robust trading system. The core of this system is not to pursue overnight wealth, but to achieve sustained profitability while controlling risk.
First is position management. I always follow the principle of 'daily stop-loss does not exceed 20% of total capital,' with single trade stop-loss kept within 10%. This means even if I make consecutive mistakes in judgment, I still have a chance to recover.
Next, I only trade the two most liquid cryptocurrencies: Bitcoin and Ethereum. Altcoins with smaller market capitalizations are more easily manipulated, and insufficient trading volume can lead to increased slippage, thereby increasing transaction costs.
Third, adhere to the mean reversion approach. I mainly reference the 4-hour level. When the price deviates too far from important moving averages, I will build positions in the opposite direction in batches. For instance, when the price is significantly below the MA60, I will open long positions in batches; the opposite is true as well. The key is to enter in batches, never firing all bullets at once.
Most importantly, I absolutely do not stay up late watching the market, and I try not to trade on weekends. The cryptocurrency market is a 24-hour market, but human energy is limited. Trading while fatigued only increases the probability of mistakes.
03 Specific trading strategies and execution details
My trading strategy is based on a simple concept: the market is always volatile, and there is no market that is perpetually rising or falling.
For opening long positions, I generally choose the support level at the same or one higher level as the entry point. The stop-loss is set below the spike low. For example, if the support level is 2320 and the spike drops to 2310, then the stop-loss should be placed just below 2310, around 2300.
For short positions, I mainly rely on important resistance levels above the 4-hour chart. For example, when the MA60 moving average continuously suppresses the price, I will use this moving average as the entry point for short positions. The stop-loss is set above the spike high.
Control the risk-reward ratio at around 3:1; this is key to long-term profitability. If the stop-loss distance is 20 points, then the profit target should be set at least 60 points or more. This means that even with a 50% win rate, it will be profitable in the long term.
Once I reach a certain level of unrealized profit, I will set a trailing stop. For example, I start trailing the stop after a 35-point profit in Ethereum, using the 3/5-minute timeframe as a reference. This way, I can preserve my capital while not missing out on subsequent increases.
04 Mindset management is key to sustained profitability
In the cryptocurrency market, mindset management is more important than technical analysis. I have seen too many technically skilled traders face liquidation due to temporary emotional imbalance.
I strictly adhere to the rule of 'no new positions on the same day after being stopped out.' After consecutive losses, individuals tend to become emotional and attempt to recover quickly, which often leads to even greater losses.
Before trading each day, I spend 10 minutes meditating to clear the emotional baggage from the previous trading day. Trading is not about competing; it is a disciplined game of executing according to the plan.
I always keep two points in mind: first, never think about going all-in for instant wealth; second, only trade in the market that belongs to you, and do not attempt to catch every fluctuation.
Opportunities in the cryptocurrency market are always available; what is lacking is patience. During the significant drop in 2021, most of those who were liquidated did so because they added high leverage. In contrast, those like me who insisted on low leverage and strict stop-loss measures not only avoided the major drop but also made money during the rebound.
05 Practical advice for beginners
If you are new to the cryptocurrency market, the following advice may help you avoid pitfalls:
Start by practicing with small amounts of capital. Don't aim to make big money right away; first, use an amount you can afford to lose completely for real trading, focusing on developing your market feel and discipline.
Stay away from high leverage. Especially leverage above 20x may seem to amplify profits, but it is actually a shortcut to losing everything. Some platforms offer leverage as high as 125x, which is undoubtedly gambling rather than investing.
Learn to keep a cash position. Among the excellent traders I know, most maintain a cash position most of the time. They only act when significant opportunities arise, rather than trading frequently.
Continuously learn and keep a trading journal. Review your trades daily to identify areas for improvement. The perfection of a trading system is an ongoing process; there is no one-size-fits-all solution.
Finally, please remember: trading in the cryptocurrency market is not protected by our country's laws. Once a related dispute occurs, investors face difficulties in defending their rights or may even have nowhere to seek redress.
In this market, which has no limits on price fluctuations, operates 24 hours a day, and is rife with manipulation, surviving is more important than making money. Establish your own trading system and strictly implement risk control to become part of the 10% winners in this 'meat grinder' of the cryptocurrency market.
Sometimes, the best trade is no trade at all. When market uncertainty is too high, holding cash and observing is not only a wise choice but also a skill.
Follow Xiang Ge to learn more first-hand information and insights about the cryptocurrency market, becoming your guide in this space; learning is your greatest wealth!
