Do you think liquidation is just bad luck? Actually, it's a trap you set for yourself step by step.

Look at those traders around you who have blown up—they're not not smart, but they haven't understood a few basic principles. Today, let's clarify these—mastering these three points can save you a lot of detours.

**Is leverage really that scary?**

Not really. 100x leverage sounds intimidating, but if you only use 1% of your position, the actual risk is even lower than holding a full spot position. The key is this formula: Actual risk = leverage multiple × position size ratio. Many people get this wrong, thinking high leverage equals high risk, but in reality, position size is the critical line between life and death.

**Why is stop-loss so important?**

It's like the fuse for your account. Professional traders have a strict rule: no single loss exceeds 2% of the principal. Sounds conservative, right? But during the 2024 plunge of 312, 78% of accounts that blew up lost more than 5% and kept holding on, with none escaping in time. Stop-loss isn't about admitting defeat; it's about staying alive to keep trading.

**Adding to positions also has its rules**

It's not about going all-in after a profit—that's suicide. The smart approach is: compound profits without touching the principal. For example, start with 10% of your principal in the first position, then only use the profits from that trade to add positions step by step. This steady growth of your position size increases safety margins naturally.

**How do institutions control risk?**

They use this dynamic position sizing model: maximum position = ( principal × 2%) / ( stop-loss range × leverage). For example, with 50,000 principal, 2% stop-loss, and 10x leverage, your maximum single position is 5,000. Sounds small? But this is the bankroll to survive until next year.

Profit-taking also has three levels: take profit at 20% gain by closing one-third to lock in gains, then at 50% by closing another third, and the remaining position is protected with a trailing stop (exit if it breaks the 5-day moving average). If conditions permit, buy some Put options with 1% of your principal as insurance to hedge about 80% of extreme risks.

**Common pitfalls you might have stepped into**

Holding a position for over 4 hours? The probability of liquidation skyrockets to 92%. Making 500 trades per month? Your account is bleeding slowly, with about 24% of your principal lost. Making profits but unwilling to take profits? 83% of accounts see profits sharply revert, and some even end up with losses.

**What does the math say about this?**

Expected profit = (win rate × average profit) - (loss rate × average loss). With a 2% stop-loss and 20% take-profit, you only need a 34% win rate to be consistently profitable. What does this mean? It means that in ten trades, winning just 3.4 times is enough.

Finally, here’s a simple and straightforward trading rule:

- Single loss ≤ 2%
- No more than 20 trades per year
- Risk-reward ratio at least 3:1
- 70% of the time stay in cash and wait

At its core, the market is a probability game. Use 2% risk to chase trends, replace emotions with discipline. Control your losses, and profits will come naturally.