The vibration of the phone late at night always brings the worst news.
“Sister, my account is gone!” At 2 a.m., my cousin in Hangzhou sent a voice message, his voice trembling. The account with 8000U, due to opening more than 3 times the long position, faced a mere 2.5% market pullback and was directly liquidated to zero. After checking the transaction records he sent, I found that he not only bet his entire account but didn't even set the most basic stop-loss line.
This scene is all too familiar. Earlier this year, I also faced liquidation twice due to betting my entire account, losing nearly half of my principal. That sense of despair was like falling into an abyss. But it was this excruciating pain that made me suddenly realize and explore three life-saving trading rules. Not only did this help me increase my net worth by 70% in four months, but more importantly, I finally broke free from the 'liquidation curse.'
Full investment = suicide: the 'IQ tax' we paid over the years.
Many people are obsessed with the mistaken notion that 'full investment = maximized returns,' which is actually the deadliest trap in the trading world. My cousin is a living example: with 95% of funds fully invested and 3 times leverage, a mere 2.5% price fluctuation caused him to exit completely.
This phenomenon is common in the cryptocurrency market. According to data, during the recent Bitcoin crash, over 190,000 people were liquidated due to high-leverage trading, with a total liquidation amount reaching 553 million USD. High leverage significantly amplifies both potential gains and losses for investors. Many investors use leverage to seek higher returns, but once the market moves unfavorably, they face huge losses or even total loss.
Leverage is like a lever that can move the Earth, but when you apply too much force, the first thing to move is your own account balance.
My three paths to redemption.
First rule: limit single openings to 5% to allow room for mistakes.
I strictly divide the total funds into 20 parts, with a maximum of 5% used for each trade. In other words, for a $10,000 account, the maximum single investment limit is 500U.
This may sound conservative, but it greatly increases the margin for error. Even if the 5% stop-loss line is triggered, the single loss is only 25U, which is less than 0.3% of the total funds. Compared to the 'one-hit-kill' risk in a fully invested mode, this strategy gives you enough breathing space to wait for the real opportunity.
The market will never lack opportunities, but it does lack capital that remains in the market forever.
Second rule: preset stop-loss at the moment of opening a position to lock in maximum loss.
I now require myself to set a stop-loss point the moment I open a position, and the single loss must not exceed 1% of the total funds.
For example, opening 3 times leverage at 500U, I strictly control my stop-loss within a price fluctuation of 1.7% (about an 8.5U loss). This practice forces me to accurately calculate the risk-reward ratio before entering, avoiding emotional holding of positions.
Liquidation usually occurs when traders lack stop-loss orders or other risk management measures. Setting a stop-loss point is crucial for automatically closing positions when the market is unfavorable, forming a key part of protecting investments.
Third rule: when the trend is unclear, it is better to stay out than to gamble.
I found that most liquidations stem from a 'lucky mentality in unclear markets.' Nowadays, I only enter when there is a daily level breakthrough of key resistance with accompanying volume, and I never blindly increase my position after making a profit.
The cryptocurrency market itself is known for its high volatility. Participating when the trend is unclear is akin to gambling. Experienced traders adjust leverage based on their risk tolerance and potential market volatility to achieve the best risk-reward ratio.
Real case: from monthly liquidations to stable profits.
A friend who followed me in learning used to average one liquidation per month. After practicing these three principles, his account steadily grew from 2000U to 3500U over six months.
He sighed: 'I used to think full investment was brave; now I understand that true courage is learning to restrain oneself.'
His transformation is not an isolated case. Proper use of leverage and strict risk management are key to avoiding liquidation. Leverage trading itself is a tool; what is scary is the reckless way it is used. Some exchanges offer leverage as high as 125 times, making a 1% price fluctuation potentially double or wipe out account equity.
The market will never change, but you can.
Late at night, I replied to my cousin: 'Liquidation is not the fault of leverage, but our disregard for funds. The market rewards those who adhere to the rules, even if many throw caution to the wind.'
The high volatility and structural fragility of the crypto market are exposed in every major drop. But this is not an excuse for our failures. A true trader is someone who can keep their ship stable even in a storm.
These three rules apply not only to cryptocurrency trading but are also survival laws for all highly volatile markets. They stem from my painful lessons and I hope they become a guiding light for your journey.
In financial markets, leverage is a double-edged sword; it can amplify both gains and losses. Only by respecting market rules and managing risks can one survive in this market for the long term.
Real trading wisdom lies not in seizing every opportunity but in being able to profit steadily even after missing countless opportunities. Follow Ake to learn more up-to-date information and knowledge in the cryptocurrency space, becoming your guide in the crypto world. Learning is your greatest wealth!
