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Rule du Jour: Rule #35 Avoid the Downdraft (Patreon)

Published:
2024-12-22 17:16:50
Imported:
2026-06
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Rule Du Jour: Rule #35 Avoid the Downdraft

We will use my 16th SOL PERP Trade as a case in point - a 98% loss after taking into account fees we can all learn from. Rem, this was mostly table money from the 15 previous trades. I never tapped into any of my staked SOL - all my staked SOL remains staked. Never throw good money after bad (another rule for later).

The "Avoid the Downdraft" rule emphasizes the importance of recognizing and respecting macro trends in the market, particularly during downward movements. Optimized Trend on the Daily is perfect for this. See above.

This by the way is regular trend on the DAILY - also helpful

A few things I have learned this time around with the SOL perp illustrate this key rule. I failed in some areas but stuck to my guns in others.

  • Respect the Macro Trend: Always be aware of the broader market direction, especially during downturns. Ignoring a downward macro trend can lead to losses. I FAILED ON THIS SCORE. I IGNORED THE DAILY AND THE 4 HOUR after 15 trades, i was just looking for a quick 20% gain and move on. The DOWNDRAFT Sucked me in hard this time and I got boxed in.

  • Beware of Overconfidence: Past successes can create a false sense of security. Even after a string of 15 winning perp trades, remain cautious and vigilant. I FAILED ON THIS AND GOT COCKY BUT I EVEN RECALL SAYING 16th TIME I HAD A BAD FEELING. NEXT TIME LISTEN TO MY GUT. BULL MARKET PULL BACKS ARE THE WORST. My 15 Perp wins in a row did just this. I felt almost invincible but that brought about another problem

  • Market Makers Hunting the Crowds Liquidity. Some many have followed and that made is all targets of market makers... so key rule is Blaze Your Own Trail, if we all head into one trade we all get hunted by market makers.

  • Avoid Chasing Quick Gains: The temptation to make a quick profit can blind you to larger market risks. Resist the urge to make impulsive trades based on short-term opportunities. Again follow the Optimized Trend on the 4 hr. I had a system that worked until it did not.

  • Monitor Trading Costs: Be mindful of fees and transaction costs, as they can quickly erode profits, especially in volatile markets. This is what ate me alive. I added collateral and reduced leverage but at the end of the day 95% was gone when u take into account fees. I took my small amt I had left and exited today. I FAILED ON THIS - as I KNEW I COULD ONLY HOLD FOR 30 DAYS - I BROKE THIS RULE

  • Limit Losses: Have a clear exit strategy and stick to it. Don't keep adding collateral or doubling down on losing positions. I was very good at this. I played with the tables money apart from my initial capital on the first trade. I COMPLIED WITH THIS RULE. I NEVER UNSTAKED ANY OF MY SOL (all of my SOL is staked). When adding collateral I bought it on coinbase and held it in reserve for a rainy day to bail out the perp. This way I never broke my rules of allocations into perps.

  • Preserve Capital: Sometimes, the best action is to exit a losing trade and preserve what's left of your capital. This allows you to "fight another day" in the market. I COMPLIED WITH THIS ALTHO ONLY A SMALL FRACTION IS LEFT. It WILL REMAIN IN THE WALLET FOR NEXT PERP OPPTY and I AM ADAMANT TO BUILD IT BACK UP.  We may chop sideways here on SOL for a while - the FUD storm is at 100 mph and everyone is YOLOing into Dino Coins and Memes... not SOL. We have to wait for the tide to turn here and that could be the new admin Jan 20th 2025 or even a SOL ETF approval. SOL remains the #1 chain by far from all the data we look at.

  • Learn from Mistakes: Use losses as learning experiences to refine your strategy and improve your risk management. I learnt a lot on this one... and I am acutely aware leverage is deadly hence the rules - I COMPLIED WITH THIS RULE. NEVER MORE THAN 1% of your SOL into a PERP - u can bend this rule if u are playing with the tables money.  NEVER MORE THAN 3.3x Leverage or else you get hunted by market makers. NEVER HOLD MORE THAN 10. to 30 days - I broke this rule and got eaten alive by fees.

in SUMMARY:

In a BULL MARKET the "Avoid the Downdraft" rule is key with LEVERAGE, as traders we need to keep an eye on that macro trend to

  • better navigate market volatility

  • be aware of bull market pullbacks

  • manage risk

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Comments

itsgonnago

I would pay a years worth of subscription fees to get THIS ONE POST! Thank you Professor James! Godspeed to you sir! 👊🙏

Gabe

Happy to report that I have at last closed my 2 perps from Nov 22nd with an average loss of 63.22%. It was painful to close it (almost had my eyes closed so I wouldn't have to see what I end up with) but also somewhat of a relief, especially now, after the fact. A few of the most important learnings for me: 1) Watch the macro trend before pulling the trigger - Looking back, even the most basic indicator like the RSI was quite overbought when I entered, hoping for an even greater pump. 2) Set a stop-loss. This is a big one for me! As you can probably tell from my above report, it is very hard for me to accept loss and get out manually. If I had set a SL like I should have, I would not have tried to save the situation by throwing more SOL at it and I would have got out far faster (with MUCH less accumulated fess) and at a MUCH higher price. The loss would have been MINIMAL compared to my current losses AND I could have used the remaining coins in the interim for good trades. 3) Avoid thinking that it "can't fall that low". I used 5x instead of 3x, hence the need to add collateral in the first place. Stick to 3x max. Although if point #2 is followed, this is not AS important. 4) Aim for short-term leverage trades (smaller time frame) instead of shooting for larger swings as those get market manipulators' attention. - As an alternative, aim for short-term price swing trades using no leverage at all.

Dijon
>>159181795

Sorry for your loss. Praise your learning. Appreciate the share.

Cray

I sold at the bottom!! Should have just waited james. Thats twice.

Maine McEachern

Does anyone have a clear definition of a "downdraft" in this context? Just a strong downward trend?

Pvo
>>159296841

I’m wondering how come IADSS didn’t show this or “we” just didn’t care and were hoping for the best? From James chart down trend is pretty much obvious from the time we entered trade but how come no one alerted this… Perhaps having a dedicated perp group might be something to think about… That way we can exchange and see others perspectives…

rkcrypto
>>159220072

Sorry for your loss. Fortunately, I patiently waited for the recovery yesterday and closed my perps with minimal loss. Lots to learn and patiently waiting for pico opportunities is key.

BTC MAX

1. Entering at a Key Fibonacci Resistance Level The $252 level is near the 127.20% Fibonacci extension level (254.10), which is often a strong resistance area. It is common for assets to face selling pressure near such levels, leading to a pullback. 2. Overbought Conditions Looking at the RSI (Relative Strength Index) in the chart, it might have been near the bull zone or an overbought condition at the time of entry. Entering during overbought conditions increases the likelihood of a pullback. 3. No Confirmation for Continuation It seems like the price was already showing hesitation or slowing momentum after hitting a previous resistance (possibly the 141.40% level). Entering without clear confirmation of continuation may lead to buying into a local top. 4. Ignoring Key Support Zones A better entry could have been closer to previous key support levels, such as $198.68 (100% Fib retracement) or $191.58 (61.80% Fib retracement). 5. Not Using Stop Loss Effectively If you didn’t set a tight stop loss below critical support zones after entering, the trade might have extended its loss during the drop to lower Fibonacci levels like $146.66. How You Can Improve Future Trades: Wait for Confirmation: Ensure there’s clear bullish confirmation (e.g., a breakout of resistance with strong volume). Avoid Chasing Tops: Be cautious about entering at resistance levels or when the RSI is near the overbought zone. Set Logical Stop-Losses: Use Fibonacci retracement or support levels to define exit points. Assess Risk-to-Reward: Ensure the entry offers a favorable risk-to-reward ratio, especially around resistance zones.

BTC MAX
>>159366035

I did had a bad feeling about this trade 16th trade , i was expecting a retracement and entered at 222 my liquifdation price is 166

BTC MAX

Avoid Buying at Resistance: Instead of entering at $252, wait for a pullback to key support levels like $215 (61.8% retracement) or $198.68 (100% retracement). These are better entry points based on Fibonacci levels. Confirm the Trend: Only enter if SOL/USDT breaks above $254 (127.20% Fib) with strong volume. A clean breakout with a retest would have been a safer confirmation. Use RSI for Timing: If RSI was above 70 (overbought), avoid entry. A better time to buy is when RSI dips closer to 40-50 and shows signs of reversal. Set a Stop-Loss: For an entry at $252, set your stop-loss just below the next support zone, such as $235 (141.4% Fib) or tighter, like $240. This limits downside risk. Plan Risk-to-Reward: If entering at $252, your target could have been $287 (200% Fib), making the risk-to-reward ratio around 1:2 or better. In summary: Ideal Entry: $215-$198 (support zones). Stop-Loss: Below $235 (if entering at $252). Take-Profit: $287 or higher.

Rotorboy

Reading all these comments has allowed me to finally admit to myself that I made a bad trade, lesson learned, now time to move on.

subconscious

This reflection is alpha.. Thank you so much for taking the time to share your thoughts publicly. Listening to you has helped me reach financial dreams for my family I never thought possible. And today I even decided to withhold from a decision made earlier this week because the reward was not balanced with a proper assessment of the risks. And it was you that came to my mind as I reflected. I recall you saying "make a plan and stick to it". I had made a plan 2 years ago, things have gone well and I was about to deviate as greed filled my mind. Thank God for your lessons. I try to watch your content on review patreon everyday.

BTC MAX

i never exit the trade my liquidation was at 150 , with a entry price of 223 rode it and exit at 245 dollars and sol went to 295 minus fees made 20 % on the trade

GauguinStockbrokerAgain

I never exit this trade until Sunday before Inauguration. I made the fees back and some profit. But had to increase my colateral significantly to lower the liquidation price in December. It was nervewracking. My idea was "No Money left behind" or "Saving Private Sol"