Reviewing Trade Performance

Reviewing Trade Performance and Simple Hedging Strategies

This guide focuses on helping beginners review their trading performance and introduces responsible ways to use Futures contracts to manage risk associated with your existing Spot market holdings. The key takeaway is that futures are tools for risk management, not just speculation. Start small, prioritize capital preservation, and use simple hedging techniques before attempting complex strategies.

Balancing Spot Holdings with Simple Futures Hedges

Many new traders hold assets in the Spot market but fear short-term price drops. A Futures contract allows you to take a short position (betting the price will fall) to offset potential losses in your spot holdings. This process is called hedging.

Partial Hedging Explained

Partial hedging means you only hedge a portion of your spot position, not the entire amount. This allows you to benefit from upward price movements while limiting downside risk.

1. **Assess Your Spot Position:** Determine the total value of the asset you wish to protect. For example, you hold 1 BTC on the spot market. 2. **Determine Hedge Ratio:** Decide what percentage of that 1 BTC you want to protect. A 50% hedge means you open a short futures position equivalent to 0.5 BTC. This is a core part of Understanding Partial Spot Hedges. 3. **Calculate Futures Size:** If BTC is trading at $30,000, a 0.5 BTC hedge requires a short position valued at $15,000 in the futures market. Be mindful of your chosen Setting Initial Leverage Caps. 4. **Monitor and Adjust:** Hedging is not set-and-forget. You must periodically review if the hedge ratio still matches your risk tolerance. This involves knowing When to Rebalance Your Hedge based on market conditions or changes in your conviction.

Setting Risk Limits and Stops

When using futures, especially with leverage, the risk of margin calls or Avoiding Liquidation Scenarios is real. Always set a stop-loss on your futures position, even when hedging. This protects you if the market moves unexpectedly against your hedge. Understanding Spot Portfolio Risk Reduction involves defining your acceptable loss threshold before entering any trade.

Using Indicators for Timing Entries and Exits

While hedging manages existing risk, indicators can help you decide when to initiate or close a futures trade (or when to adjust the hedge ratio). Remember that indicators provide clues, not certainties. Always seek Entry Timing Confluence Check.

Relative Strength Index (RSI)

The RSI measures the speed and change of price movements.

Readings above 70 often suggest an asset is overbought, potentially signaling a good time to initiate or increase a short hedge.
Readings below 30 suggest oversold conditions, potentially signaling a good time to reduce a short hedge or prepare for a spot purchase.

Crucially, overbought/oversold is context-dependent. A strong uptrend can keep the RSI high for a long time. Combine this with trend structure analysis.

Moving Average Convergence Divergence (MACD)

The MACD helps track momentum shifts. Beginners should focus on crossovers.

When the MACD line crosses above the signal line, it suggests increasing upward momentum. This might be a signal to close a short hedge.
When the MACD line crosses below the signal line, it suggests momentum is slowing or reversing downward. This could signal opening a short hedge.

Be aware that the MACD is a lagging indicator; rapid reversals can cause false signals, known as whipsaw. For more detail, review Interpreting MACD Crossovers. Further reading on momentum can be found at How to Trade Futures Using the Rate of Change Indicator.

Bollinger Bands

Bollinger Bands create a dynamic channel around the price based on volatility.

When the price touches or breaks the upper band, it suggests the asset is relatively expensive; this might support a short entry or hedge initiation.
When the price touches the lower band, it suggests the asset is relatively cheap.

A common pattern is the Bollinger Band Squeeze Signals, where narrow bands indicate low volatility, often preceding a large move. Do not treat band touches as automatic buy/sell signals; they indicate volatility extremes, not necessarily reversal points.

Trading Psychology and Risk Management Pitfalls

Even with a perfect hedging plan, poor psychology can ruin performance. Reviewing your trades must include a psychological audit.

Avoiding Common Pitfalls

**Fear of Missing Out (FOMO):** Chasing a rapidly rising price often leads to buying high, which is the opposite of what a hedge is meant to protect against.
**Revenge Trading:** Trying to immediately recoup a small loss by taking a much larger, riskier trade is a classic error. Review Avoiding Revenge Trading Urges.
**Overleverage:** Using high leverage magnifies small price moves into catastrophic losses, especially on the short side of a hedge if the spot asset unexpectedly rallies hard. Stick to low leverage when hedging initially. This directly relates to Simple Futures Contract Sizing.
**Discipline Against Overtrading:** Opening too many small, unnecessary trades introduces excessive fees and slippage, eroding profits. Learn the value of patience; review Discipline Against Overtrading.

Risk Notes for Futures Trading

Remember that futures trading involves costs beyond the entry price.

**Funding Rates:** If you hold a perpetual futures contract, you pay or receive the Understanding Funding Rates. If you are short-hedging and the market is heavily long, you might pay funding fees, which eats into your hedge effectiveness.
**Fees and Slippage:** Every entry and exit incurs exchange fees. Slippage—the difference between the expected price and the executed price—is worse during high volatility. These factors must be accounted for when calculating Setting Realistic Profit Targets.

Practical Performance Review Examples

Reviewing performance means looking at scenarios. Assume you hold 10 ETH on the Spot market when ETH is $2,000 ($20,000 total value). You decide on a 50% partial hedge (short 5 ETH futures).

Scenario 1: Price drops to $1,800 (10% drop).

Spot Loss: $2,000 (10% of $20,000).
Futures Gain (assuming no leverage for simplicity): $200 (10% gain on the 5 ETH short position).
Net Impact: Loss of $1,800. Without the hedge, the loss would have been $2,000. The hedge saved you $200, covering most of the loss.

Scenario 2: Price rises to $2,200 (10% rise).

Spot Gain: $2,000.
Futures Loss: $200 (10% loss on the 5 ETH short position).
Net Impact: Gain of $1,800. Without the hedge, the gain would have been $2,000. You sacrificed $200 of potential profit to maintain downside protection.

Use a simple log to track these outcomes.

Trade Metric	Value Before Hedge	Value After 50% Hedge
Initial Spot Value	$20,000	$20,000
Price Change	+10%	+10%
Spot PnL	+$2,000	+$2,000
Futures PnL	$0	-$200
Net Result	+$2,000	+$1,800

This table illustrates the trade-off inherent in Spot Asset Protection Using Futures. For guidance on executing trades, see How to Trade Crypto Futures on Bybit.

Conclusion

Reviewing your trading performance requires honesty about both market execution and psychological discipline. When using futures to hedge spot assets, keep the hedge simple, use indicators like RSI, MACD, and Bollinger Bands only as confirmation tools, and strictly adhere to risk management rules, especially regarding leverage and stop losses. This structured approach is vital for long-term success in both the Spot market and derivatives trading. Remember that every trade exposes you to risk, and understanding Defining Acceptable Trading Risk is step one.

Recommended Futures Trading Platforms

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Reviewing Trade Performance

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