Perpetual futures trading is not for the faint of heart, and yet, it has become a market for those who are willing to accept significant financial risks and understand complex derivatives.
To trade perpetual futures, you don’t need to predict the future. However, you should understand a few common strategies and, most importantly, have the discipline to actually use them. Whether its following trends, waiting patiently for a pullback, or analyzing potential breakout opportunities, understanding the right approach is crucial for risk management.
This guide explores some commonly discussed ways traders approach the perpetual futures market—so keep on reading!
Trading perpetual futures: Key strategies
There are several common strategies that traders might consider when trading perpetual futures.
The following strategies are presented for educational purposes only. Past performance does not guarantee future results. All trading strategies carry substantial risk of loss, including total loss of capital.
- Trend-following strategy: This approach means identifying the current market trend and trading in its direction. Traders might use tools such as moving averages or the Relative Strength Index (RSI) to spot whether the market is in an uptrend or downtrend. If the price is showing a clear uptrend (higher highs and higher lows), some traders might consider going long and attempt to follow the upward momentum. If the price is in a sustained downtrend (lower lows and lower highs), traders might consider shorting to capitalize on the falling market. It’s important to map out key support and resistance levels (price areas where the trend has paused or reversed before) to plan potential entries. Trend-following often pairs well with swing trading, where traders attempt aim to hold a position for several days to catch a larger price swing in the direction of the trend, though this also increases exposure to overnight and weekend risks.
- Pullback strategy: A pullback is a temporary move against the prevailing trend—for example, a small dip during an uptrend or a brief rally during a downtrend. Rather than chasing the price at its peak, traders might wait for this retracement and enter the trade at a potentially better price. In an uptrend, after the price breaks out above a resistance level, it often pulls back slightly as some traders take profits. That old resistance can sometimes turn into a new support level. If the price “tests” that support (i.e. falls to it and holds steady) and then starts rising again, traders might consider going long—attempting to buy the dip with the hope that the uptrend will continue. In a downtrend, the reverse applies: if price breaks below a support level and then bounces up briefly, that old support might become a resistance barrier, and traders might consider shorting at that point, anticipating the downtrend to resume.
- Breakout strategy: This strategy focuses on trading the moment when price escapes a defined range or chart pattern. A breakout happens when an asset’s price moves decisively above a strong resistance or below a strong support level that has kept it in a range. The idea is to enter a position as momentum accelerates. Some breakout trades may occur with increased trading volume, which some traders view as confirming that many traders are entering and driving the move. Traders using this strategy will typically set buy orders just above resistance (or sell orders just below support for a bearish breakdown) and attempt to capture the resulting momentum. It’s crucial, however, to try to confirm the breakout—for example, using volume or an indicator such as the Average True Range (ATR) to help determine it’s not a false break.
Each of these strategies can potentially work in certain market conditions, but none are guaranteed to be profitable, and all carry substantial risk of loss. It’s important to thoroughly understand the risks and practice different strategies and see which fits your risk profile, style and risk tolerance. Many traders combine elements of these strategies or switch between them depending on market conditions.
If you’re keen to explore further, the following guides offers a deeper dive into technical analysis. Remember that technical analysis is not predictive and many traders lose money even when using these tools.
Tools & data for perpetual futures trading
Perps trading involves more than just analysis; traders often use tools and data to attempt to improve their decision-making.
Here are some tools traders might consider to incorporate into a trading routine (none of these eliminate risk or guarantee profits):
- Technical charting & indicators: Like any form of trading, perps often involve good old-fashioned chart analysis. Traders might use candlestick charts on various timeframes to observe price trends and patterns. Most trading platforms offer a suite of technical indicators (moving averages, RSI, MACD, Bollinger Bands, etc.) that traders might overlay on charts. For a more detailed look at charting strategies, you can review our comprehensive Crypto Chart Pattern guide.
- Market sentiment metrics: Two key metrics are the funding rate and open interest. When the funding rate is significantly positive, it means longs are paying shorts, which some traders interpret as potential bullish overcrowding (though markets can remain irrational longer than traders can remain solvent), and when funding is negative, shorts are paying longs, which some view as bearish sentiment (though this is not a reliable predictor). Open interest (OI), on the other hand, measures the total number of active contracts (long or short). If OI is rising, it means new positions are being opened, which many interpret as growing interest. If OI is falling, traders are closing positions or getting liquidated, which can signal that a trend is cooling off.
- Analytics platforms & alerts: Traders don’t need to compile all this data manually. There are numerous analytics platforms and tools that aggregate information for perp traders. These tools can show funding rates across exchanges, total open interest and its changes, long/short ratios, recent large liquidations, and more. Utilizing these may provide data points, though they should not be relied upon as the sole basis for trading decisions.
Risk management for perpetual futures trading
Trading perpetual futures isn't just about picking the right strategy; it's primarily about protecting yourself through education and risk management. Having said that, risk management is essential but does not eliminate the possibility of substantial or total loss.
Here are some risk management best practices to keep in mind:
- Leverage: Be very deliberate with your leverage. High leverage sounds attractive because it can multiply your gains, but it also multiplies losses and increases the chance of getting liquidated. Using lower leverage gives your position more room to breathe if the market moves against you, though you can still lose everything.
- Stop-loss: A stop-loss is a predetermined exit price for your trade (note: these can fail during extreme volatility or flash crashes). By placing a stop-loss, you instruct the platform to attempt to close your position if the market hits a certain price against you. This is intended to help limit a bad trade from turning into a catastrophic loss while you’re not watching.
- Margin: In perpetual futures trading, it’s important to keep some extra funds in your account beyond the initial margin for your positions. This buffer acts as a cushion if the market moves against you. By having a buffer, you may slightly reduce the likelihood that a quick price spike or dip immediately triggers a liquidation.
- Diversify: Relying on a single, highly leveraged position is extremely risky. If that one trade goes wrong, it could result in a total loss for your account. Some traders attempt to spread capital across multiple positions or even different assets to diversify risk. The key takeaway is to avoid all-or-nothing bets that could wipe out your entire trading portfolio.
- Fees: Don’t overlook the “hidden” costs of trading perps. Every trade will incur trading fees (maker or taker), and if you hold a position for a long time, you’ll also pay or receive the periodic funding rate. These costs can add up and significantly impact your returns or increase your losses if not managed.
- Overtrading: Patience is essential in trading. Overtrading—entering too many trades, often out of boredom or a desire to quickly win back losses—usually leads to increased mistakes, higher fees, and substantial losses. It’s generally considered more prudent to take a few well-thought-out trades than dozens of impulsive ones. Don’t let the excitement of the market tempt you into constant action.
- Emotions: Before entering any perp trade, traders should consider having a plan. This might include an entry point, profit target, and stop-loss level. This trading plan should be based on analysis (technical or fundamental) and not on emotions or speculation. Once a trade is active, disciplined traders try to stick to their plan, though this is psychologically difficult. One of the biggest mistakes traders make is letting emotions dictate their actions, leading to increased losses.
Choosing where to trade perpetual futures
Where you trade your perpetual futures is just as important as how you trade them.
When selecting a platform to trade perps, consider the following key factors:
- Security & reliability: The safety of your funds should be a top priority. Choose a platform with strong security measures. Do thorough research: has the platform ever been hacked? How did they handle it? A platform that has operated for years without major incident and is transparent about its security procedures may be preferable than an unknown, opaque venue.
- Liquidity & volume: Liquidity refers to how easily you can execute trades at a stable price. On a highly liquid platform, large orders can be filled without moving the price much, and the bid-ask spread (difference between buy and sell price) is small. For perpetual futures traders, especially if you plan to trade significant size or use market orders, it’s important to trade where liquidity is deep.
- Fees & funding rates: Every exchange has its own fee structure. Even if fees look small, they add up over many trades and can turn a marginally profitable strategy into a losing one. Compare the trading fees (both maker fees for posting limit orders and taker fees for market orders) across different platforms. Some exchanges offer volume-based discounts or even zero/negative maker fees to incentivize liquidity.
- Leverage & risk controls: Different platforms offer different maximum leverage levels. While you should be extremely cautious with leverage as it amplifies losses, consider a platform that offers appropriate risk controls (e.g. if you’re a low-leverage swing trader, almost any platform will do, but if you’re considering high-leverage strategies, be aware of the extreme risks involved). Platforms also offer tools like stop-loss and take-profit orders, trailing stops, and maybe even features such as time-based conditional orders or volume triggers.
By evaluating platforms on these factors, you can find a venue that matches your requirements. It’s often recommended to start on a well-known, beginner-friendly exchange to get comfortable and later explore other platforms as you gain experience. Just remember to stay within what you’re comfortable with: trading perpetual futures is extremely risky, so you don’t want additional risk from a questionable platform.
Perpetual futures trading with Phantom
Alongside spot trading, eligible users in permitted jurisdictions can trade perpetual futures on Phantom through Phantom Perps.
Most perps platforms today are designed for pros with complex trading features, which can be challenging and potentially dangerous for inexperienced users. But with Phantom’s intuitive, mobile-first design, you can easily open, close, and manage positions directly within your wallet. Even so, the same underlying risks apply, regardless of the fact that Phantom Perps may feel more straightforward to use.
FAQs
Disclaimer: This content is for general educational purposes only. It is not financial advice, investment guidance, or a solicitation to buy, sell, or trade any assets, products, or services. Past performance is not indicative of future results. Any examples or strategies discussed are for illustrative purposes only and should not be considered as recommendations. Perpetual futures are complex, high-risk instruments that are not suitable for all investors. Phantom Perps are not available everywhere. This guide is not intended for UK audiences.
