Trading Concepts
Essential knowledge for trading perpetual futures. Understand the fundamentals before deploying capital.
Perpetual futures (perps) are derivative contracts that track an underlying asset's price without expiration.
Key Characteristics
| Feature | Description |
|---|---|
| No Expiration | Unlike traditional futures, perps never expire |
| Funding Rate | Periodic payments keep price aligned with spot |
| Leverage | Trade larger positions with less capital |
| Both Directions | Profit from both rising and falling prices |
Funding Rates Explained
- Positive funding:Longs pay shorts (perp price > spot)
- Negative funding:Shorts pay longs (perp price < spot)
- Frequency: Every 8 hours on Hyperliquid
- Impact: Can significantly affect profitability of longer-term positions
Trend Indicators
| Indicator | Purpose | Signal |
|---|---|---|
| Moving Averages | Identify trend direction | Price above MA = bullish |
| MACD | Trend momentum and reversals | Histogram direction |
| ADX | Trend strength (not direction) | > 25 = trending |
Momentum Oscillators
| Indicator | Range | Overbought/Oversold |
|---|---|---|
| RSI | 0-100 | > 70 overbought, < 30 oversold |
| Stochastic | 0-100 | > 80 overbought, < 20 oversold |
| CCI | -∞ to +∞ | > 100 overbought, < -100 oversold |
NOTE
Indicators are tools, not crystal balls. Use multiple indicators for confluence. No single indicator predicts the future.
Core Principles
- Never risk more than you can afford to lose
- Use stop-losses on every trade
- Size positions appropriately (1-2% risk per trade)
- Diversify across uncorrelated positions
- Have a plan before entering any trade
Risk Metrics to Monitor
| Metric | Definition | Target |
|---|---|---|
| Max Drawdown | Largest peak-to-trough decline | < 20% |
| Risk per Trade | % of capital at risk per position | 1-2% |
| Total Exposure | Sum of all position sizes / capital | < 100% |
| Correlation | How positions move together | Low correlation preferred |
| Pitfall | Problem | Solution |
|---|---|---|
| Overleveraging | Small moves cause large losses | Start with 3-5x max |
| No Stop-Loss | Small loss becomes catastrophic | Always use stops |
| Revenge Trading | Trying to recover losses quickly | Take breaks after losses |
| FOMO | Chasing moves after they happen | Wait for proper setup |
| Overtrading | Too many positions dilute edge | Quality over quantity |
WARNING
Most traders lose money. Proper risk management is what separates successful traders from the rest.
Recognizing Market Conditions
| Condition | Characteristics | Strategy Fit |
|---|---|---|
| Trending | Clear direction, higher highs/lows | Trend following, momentum |
| Ranging | Price oscillates between levels | Mean reversion, range trading |
| Volatile | Large, fast price swings | Reduced size, wider stops |
| Quiet | Low volatility, tight ranges | Patience, smaller positions |
TIP
Different market conditions require different strategies. What works in a trend will fail in a range. Adapt or sit out.
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