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3 Basic Rules to Lessen the Risks of Losing a Trade in Leverage Trading.
I don't usually give financial advises to everyone that wants to trade cryptocurrencies especially for beginners, but I do love to share my past experiences and lessons that I have learned to everyone, whether new or not in trading, hoping that they can avoid the mistakes that mostly everyone or beginners usually do and avoid losing money.
This article is more like of a financial advice but not for you to be a profitable trader, instead to be a disciplined one if you don't want get wrecked and end up losing your capital.
The term 'leverage' refers to how much the position was increased by, for instance, 100x (or 1:100) leverage will increase a $500 Bitcoin position to be as big and as profitable as a $50,000 Bitcoin position.
You might have seen lots of posts in different social medias flexing their wins and huge gains with leverage trading and this alone can hype everyone especially those who have don't have any idea about it but also want to have those huge gains. Most newbies want to jump into trading without knowing how things work with it but only sees it as an opportunity to have a huge amount of money in a short amount of time. Without knowing the risks of leverage, without any idea how to do it and carelessly gamble their money, they or they can possibly end up losing their money and feel unfortunate.
People might show you their success in a trade with huge gains but you should also know that behind those success were lots of failures and losses. You can easily gain 100x of your capital in leverage trading but you can also lost it all within just an hour because of recklessness.
The maximum leverage you can use in Binance (Let's take this as an example) is a maximum of 125x in lots of trading pairs in their Future Trading platform. With that huge leverage, a small percent of growth of a certain cryptocurrency can instantly give you a huge return in your trades. That really sounds good, right?
But, you should also think of the other possibilities. If you can have huge gains using 125x leverage with just a small growth in price, you can also have a huge loss if things didn't go as you wanted it to be. This is why using high leverages is not recommendable for everyone that just got started in trading. It's your money. If you lost it, it's your responsibility.
When starting, always start with small leverage first. With this, you can gain experiences and feelings of what it's like making your money in a gamble. Yes you might only have small gains if your trade is right, but you will only have small loss too when your trades doesn't seems right.
Learn and gain experiences with using small leverages, and when the time comes that you think you have learned enough, you can slowly use a higher leverages if you think your own strategy works for you.
For every trade we have, when we saw that our positions are making greens and in profit, we seemed to be wanting more of it and decided to just let it keep on going and feels so sure that the liquidation price is way too far to be reach. We usually aim and want more gains and hoping that the price can increase even more that we end up not setting a stop loss.
Remember, cryptocurrency is so volatile that we might see a 10% increase of its price and then down to -20% in just an hour or minutes.
Never be too greedy that you don't want to set your stop loss anymore. When you are already in a profit of your trades, use trailing stop loss where your trades will end of it hits your stop loss price or take some profit already and let the other funds to work. Up or down, whatever happens, the important thing is that you have already secured your profit.
Trading cryptocurrencies can't be mastered and learned in just a day. You need to be fully committed in learning about it. It could take years to master it but the important thing is that we can learn a thing or two everyday with the help of internet. It's only up us how committed we can be about it.