Liquidation: Traders Most Fearful Junction

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Welcome to my blog post and today I will be branching into the trading realm. During my last post about margin trading, I give some details explanation about what margin trading Is all about and I said I will make a post about liquidation. Every traders are always scared to be liquidated, this type of emotions that always catch them when they reach this junction. Most newbies do ask me, do liquidation occur when crypto price reduce beyond your imagine. I always reply NO, if you buy any coin from crypto market, even if the price reduce, the coin is still yours, nothing will touch it. Liquidation can only occur to traders. Let go into liquidation proper.

What is liquidation?

Liquidation is refers to as been pulled out, it always occur when the market is really going against you and the total money you are losing is getting closer to your total account balance, once it reaches it, liquidation will occur, leaving your balance with zero or cent. I remembered back then, when I was trying to trade on live account and I deposited $13 to practice, and I have no knowledge then, the market went against me and reduce my capital to $9, I gave it my best and push it to $58 and one trade really pull me out, it went like speed of light and I was left with $0.21. I was just shocked, like what really happened. Let say I have knowledge back then, I would have open in to margin trading which should have giving me some leverage to increase my trading capital.

Liquidation price are always calculate immediately you open a position instead of you to start calculating and inserting it manually, it is always determined by three things which are

• Your position

• the leverage

• lastly the remaining account in your balance

This three will determine what your liquidation point will be and when the market go against you and reach that point, you will be pull out (just like game over). As a trader you must be careful with the leverage you are using, the higher your leverage, the higher the chance of been liquidated if something go wrong, you must learn not to trade more about 10x and if you are a newbie still learning, try not to increase your leverage about 2x.

Tips on how to avoid liquidation

• Don’t trade with all your capital

This is one aspect where most newbies are making mistake, they always want to enter the market with everything they have, all capitals so they can earn big, which is totally wrong. What will happen if you enter the market with all your capitals and you got liquidated, isn’t that the end of your trading journey, back to square one. Always avoid trading with all your capitals

• Always use a stop loss order

When trading stop loss order is very important, using a stop loss will actually minimize your loss, and prevent you from getting liquidated, at times you will always feel like adjusting your stop loss that the market will retrace back and go in your favour, which at times is always wrong, doing that everytime will make your liquidation very easy.

• Know your chart and know what you are getting yourself into

Trading without having proper knowledge of what you are doing is totally wrong, most enter trading just to cash out this money, candle stick they don’t understand, trending lines they can’t differentiate. Learn and make use of testnet or demo account to train yourself, set target and if you can meet it then port to live account and start proper training.

• Greediness

You should always try to eliminate the mind of greediness, it rekt traders prematurely, profit you suppose to make in 10 days, you want to make everything in just a day, trading isn’t like that, it is a gradual process. Always note that.
Liquidation isn’t the end of everything, that doesn’t mean you should now give up totally on trading. Till next time, stay safe and take care.