Reviewing Past Trade Performance
Reviewing Past Trade Performance and Balancing Spot with Futures
Welcome to reviewing your trading history. For beginners, the goal is not perfection, but consistency and learning from every trade. This guide focuses on practical steps to analyze past performance, specifically how to use the Futures contract market to protect or manage your existing Spot market holdings, and how to use simple technical indicators for timing. The key takeaway is that successful trading involves planning, documentation, and risk control, not just guessing market direction.
Practical Steps: Balancing Spot Holdings with Simple Futures Hedges
If you hold cryptocurrency on the spot market but are worried about a short-term price drop, you can use futures contracts to create a temporary hedge. Hedging means taking an opposite position to offset potential losses.
Understanding Partial Hedging
A full hedge would mean selling enough futures contracts to cover 100% of your spot holdings. For beginners, a Partial Hedge is often safer as it still allows you to benefit if the price rises slightly, while protecting against a major crash.
1. Determine your spot position size. For example, you own 1 Bitcoin (BTC) in your Spot market. 2. Decide on a hedge ratio. A 50% hedge means you want to protect half the value. 3. Use the Futures contract market to sell (short) the equivalent value. If 1 BTC is worth $50,000, a 50% hedge means shorting $25,000 worth of BTC futures. 4. Monitor the hedge. The hedge is temporary. You must plan when to close it, which is covered in When to Close a Hedge Position.
Setting Risk Limits and Documentation
Before entering any trade, especially when using leverage associated with futures, you must define your risk.
- Define your maximum acceptable loss per trade. This helps prevent excessive losses if the market moves against you unexpectedly.
- Always use a Stop Loss Placement Near Indicators logic rather than guessing the exit point.
- Maintain an Importance of Trade Documentation log. Record why you entered the trade, your intended exit, and what indicators you used. This is crucial for effective review, as detailed in Portfolio Performance.
Remember that even a partial hedge reduces variance but does not eliminate risk. You must also account for Understanding Funding Rates in Futures which can accumulate costs while your hedge is open.
Using Indicators for Entry and Exit Timing
Technical indicators can help confirm your analysis and provide objective entry or exit points. Never rely on a single indicator; look for confluence (agreement between multiple signals).
Relative Strength Index (RSI)
The RSI measures the speed and change of price movements, oscillating between 0 and 100.
- Readings above 70 often suggest an asset is overbought (potential selling signal).
- Readings below 30 suggest an asset is oversold (potential buying signal).
For timing entries, beginners should look for the RSI to move out of the oversold territory, rather than buying immediately when it hits 30. This aligns with Using RSI for Entry Timing Low Risk.
Moving Average Convergence Divergence (MACD)
The MACD shows the relationship between two moving averages of a security’s price.
- A bullish crossover occurs when the MACD line crosses above the signal line. This can confirm a shift in momentum.
- A bearish crossover is the opposite and may signal weakness.
Reviewing past trades should include checking if MACD Crossovers for Trend Confirmation occurred near your entry or exit points. Be aware that the MACD can lag the price action.
Bollinger Bands
Bollinger Bands consist of a middle band (usually a 20-period Simple Moving Average) and upper and lower bands that represent standard deviations from the middle band. They measure volatility.
- When bands contract, volatility is low, often preceding a large move.
- When price touches the upper or lower band, it suggests the price is relatively high or low compared to recent volatility.
Do not treat a touch of the band as an automatic signal. Combine this with analysis of Identifying Major Support Levels or Recognizing Resistance Zones.
Common Psychological Pitfalls and Risk Management
Reviewing performance often reveals psychological errors more than technical ones. Avoiding these pitfalls is key to long-term survival.
The Dangers of Overleverage and FOMO
Using high leverage in Futures contract trading magnifies both gains and losses, increasing Liquidation risk. New traders often use too much leverage because they fear missing out (FOMO).
- **FOMO:** Buying simply because the price is moving up quickly. This often leads to buying near a local peak.
- **Revenge Trading:** Trying to immediately win back money lost on a previous bad trade by taking a larger, riskier position. This is a hallmark of poor Discipline in Trade Execution and is detailed in Revenge Trading Pitfalls to Avoid.
To combat this, always adhere to strict risk management rules, such as Setting Daily Loss Limits.
Practical Example: Sizing a Small Hedge Position
Suppose you hold 0.5 ETH spot and the price is $3,000 per ETH. You are concerned about a short-term dip but want to maintain most of your upside potential. You decide on a 40% hedge ratio.
Total ETH value = 0.5 * $3,000 = $1,500. Hedged Value = $1,500 * 0.40 = $600.
If you are trading ETH/USD futures contracts where 1 contract equals 1 ETH, you would need to short 0.6 ETH worth of futures contracts (if your exchange allows fractional contracts) or adjust your position sizing based on the contract multiplier.
For simplicity in this example, let's assume you are using a platform where you can short $600 worth of ETH futures.
| Parameter | Value |
|---|---|
| Spot Holding (ETH) | 0.5 |
| Current ETH Price ($) | 3000 |
| Desired Hedge Ratio (%) | 40% |
| Value to Hedge ($) | 600 |
| Action (Futures) | Short $600 equivalent |
If the price drops 10% ($300), your spot position loses $150. Your hedge position should gain approximately $60 (plus or minus fees and funding). This reduces your net loss significantly, allowing you to focus on Managing Spot Holdings During Volatility. If you are looking for regional guidance on exchange use, check out How to Use Crypto Exchanges to Trade in South America".
Reviewing and Improving Execution
A thorough review involves looking at execution quality. Did you enter exactly where you planned? Did you wait for the indicator confirmation?
- **Slippage and Fees:** Check if the actual execution price differed significantly from your intended price, especially during high volatility. High trading fees can erode profits quickly, making proper Scaling in and Scaling Out Trades crucial.
- **Market Context:** When reviewing a loss, check the broader market context. Were you trading against a major trend? Reviewing charts for Understanding Order Book Depth can reveal if large orders pushed the price past your entry point.
- **Scenario Thinking:** For every loss, ask: "If I had waited for confirmation from both the RSI and the MACD, would I have avoided this?" For every win, ask: "Could I have exited sooner or held longer based on the Bollinger Bands volatility squeeze?"
Consistent journaling, as discussed in Emotional Trading Journaling Tips, transforms simple record-keeping into a powerful tool for improving Discipline in Trade Execution. When markets are choppy, understanding concepts like Contango and Backwardation Basics might also affect your futures strategy review. For more on handling difficult markets, see How to Trade Futures During Volatile Market Conditions.
Recommended Futures Trading Platforms
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