Even when the direction is correct, liquidation can still happen; the real risk lies in the details of the trading rules.
A couple of days ago, a reader approached me, their voice almost breaking: “Teacher, I got the direction right and held onto several positions for days, but I lost over 1000 U to funding fees, just after I got liquidated, the market took off.” I only replied to him, “You didn't lose to the market, you lost to the rules.”
Many people simply understand contract trading as a game of predicting rises and falls, but they do not realize that the true outcome has already been determined before engaging with the market. Market fluctuations may only occasionally hit you, but the traps hidden in the trading rules can drain your capital at every step.
I have also paid a heavy price.
In 2020, I clearly saw the bullish trend for Ethereum, and the direction was entirely correct. However, after holding for just three days, the funding rate acted like a slow poison, gradually eroding my margin. By the fourth day, my account mysteriously decreased by over 700 USDT. The anger and helplessness I felt at that time are still fresh in my memory.
It was later that I realized: in this market, merely judging the right direction is far from enough. You must learn to dance within the framework of rules, rather than being tripped by them.
Those lesser-known rule traps.
Funding rates are a typical 'invisible killer.' Perpetual contracts anchor spot prices through funding rate mechanisms, which normally serve as a balancing mechanism. However, when market sentiment is extremely biased towards one side, longs or shorts must continuously pay high fees.
If you go long when the funding rate is positive, it's like carrying a leaking bucket forward; even if the direction is correct, you might exhaust your margin due to continuous fees.
More advanced is the 'price suppression and accumulation' technique often used by market makers. They deliberately lower prices through large sell orders, triggering retail stop-loss orders, then buy at low prices, waiting for the market to recover and make a profit. In such cases, even if you are right about the overall direction, you might be washed out before dawn.
My survival rules reconstructed.
After experiencing the lesson, I completely adjusted my trading strategy:
Never go against funding rates: during continuous high rates, either exit the market or hedge, never hold on stubbornly.
Higher leverage isn't always better: beginners should limit to 5-10 times, and experienced traders should not exceed 20 times.
Stop-loss is a protective wall, not a decoration: preset stop-loss positions and strictly execute them.
Position management determines life and death: the risk of a single trade should not exceed 1%-2% of the total account funds.
Many people mistakenly believe that with ten times leverage, a 10% drop will lead to liquidation, but that's not the case. Considering forced liquidation fees and slippage costs, a price fluctuation of 5% could lead to liquidation. You may think there’s room for maneuver, but the bottom line has already been hollowed out by various rules.
Beware of the psychological games of market makers.
One of the most commonly used strategies by market makers is 'false trading.' They place a large number of buy orders on the order book to create a bullish illusion, and then suddenly withdraw orders and short when prices rise.
This technique specifically targets traders who blindly follow trends.
Another common situation is 'arbitrage trading,' which artificially creates a large trading volume by simultaneously buying and selling, attracting retail investors to follow. When you see a certain cryptocurrency suddenly surge with volume and blindly chase in, you might be falling into a trap set by market makers.
The market will present various signals to entice longs or shorts; recognizing these traps requires comprehensive judgment based on trading volume, open interest, and other indicators.
Become a hunter under the rules.
Now, the first lesson I teach my students is never about how to judge ups and downs, but rather:
How to interpret funding rates and open interest data.
Calculate the real forced liquidation price, not just the theoretical value.
The basic mathematical formula for position management.
Identify periods of weak market liquidity (such as weekends and non-trading hours) and avoid making large trades during these times.
There are no shortcuts in the crypto world; true experts are not those who seize a big rally but those who can avoid all traps and stay in the game long-term.
The pit I once fell into is now filled. This road is smooth enough and stable enough. The lights are on, and the path is clear - are you ready to set off?
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