The Art of the Scatterer: Using "Tao, Fa, Shu, Qi, Shi" to Navigate the Contract Market

The Five Layers of Competition in the Contract Market: The Game of Hunting and Being Hunted

In the crypto contract market, behind every candlestick, there are the corpses of bulls and bears. This is not a cash machine, but the world's most brutal capital game—every profit you make comes from your opponent’s loss; and their loss either results in passive liquidation or active cutting losses.

Understanding the origins of these two types of losses is the key to truly grasping the underlying logic of the market. Today, we will use the Chinese philosophical concepts of “Tao, Fa, Shu, Qi, Shi,” combined with the core opponent mindset, to analyze the essence of this game from top to bottom.

**Introduction: Shi—Standing on the Winner’s Side**

First Principles: Trends are the result of the battle between bullish and bearish forces, and are determined by the victorious side.

“Shi” is not just the slope of a candlestick but the absolute imbalance of power between bulls and bears. The formation of a trend often involves a large number of opponents surrendering and leaving:

- Passive liquidation: When price breaks through key levels, over-leveraged opponent positions are forcibly closed by the system, turning their positions into fuel for the trend.
- Active cutting: When the trend continues to be unfavorable, the opponent holding the position finally collapses psychologically and chooses to cut losses, accelerating the trend’s continuation.

Both behaviors essentially involve the outflow of opponent funds, which then become the profits of the winners.

Human Weaknesses:

- Greed (Luck): After a sharp decline, blindly bottom-fishing ignores the fact that many opponents are still trapped and waiting to cut losses, creating a “kill more than kill” stampede.
- Anger (Confrontation): Going against the trend by holding on, thinking the market will turn around, actually pits you against the entire winning camp—ultimately leading to liquidation or cutting losses.

Understanding Shi means recognizing these two opponent movements: Who is bleeding out? Who still has ammunition? Stand on the winner’s side.

**Chapter 1: Dao—The Harsh Reality of Zero-Sum Games**

First Principles: The contract market is a strict zero-sum game (after fees). If you buy long, someone must sell short to you. Every profit you make directly comes from your opponent’s loss, which manifests in two ways:

1. Passive liquidation: Opponent positions are forcibly closed due to insufficient margin—this is the most severe loss, often occurring in extreme market conditions.
2. Active cutting: Opponents close their positions voluntarily while still having margin, leaving some capital intact but with losses already decided.

There is no third possibility. Whether it’s liquidation or cutting losses, both are signs of opponent surrender.

Human Weakness: “Foolishness”: Many treat contracts like spot trading, holding on after losses. But in contracts, time, funding rates, and delivery dates are tools opponents use to harvest your capital. Your “faith” is just perceived as “silly” in the eyes of opponents.

Enlightenment: Before opening a position, ask yourself: “Am I about to harvest the opponent who is being liquidated passively, or the one actively cutting losses? Is my entry position forcing them to make mistakes?”

**Chapter 2: Fa—The Survival Rules for Hunting Opponents**

First Principles: Stop-loss is your life-saving talisman and also the target for opponents to hunt.

The market is filled with “hunting stop-loss” behaviors. Price often sweeps away your stop-loss before reversing because that’s where liquidity is richest—your cutting-loss orders are the source of opponent profits.

How to formulate rules using opponent mindset:

- Target “opponents about to be liquidated”: When price approaches the liquidation line of high leverage, it often triggers chain liquidations, accelerating the trend. In this case, adding to your position is like grabbing these bloodied chips.
- Target “opponents about to cut losses”: When price repeatedly tests a key level, those stubborn opponents are psychologically vulnerable. Once broken, their cutting-loss orders flood out, and following in at this moment allows you to harvest their stop-losses.

Human Weakness: “Greed”: Many set their stop-loss at obvious levels (like previous highs or lows), which in the eyes of opponents is just liquidity waiting to be taken.

Legislative Wisdom:

1. Hide your stop-loss: Place it where opponents find it hard to target precisely, such as avoiding round numbers or slightly offset from previous highs/lows.
2. Be ruthless with take-profit: When the trend accelerates, it’s often the moment when “liquidation” and “cutting losses” concentrate. Volume surges, but it’s also the time for profit-taking. Take profits in stages, leaving the last part for the “last bag holder.”

**Chapter 3: Shu—Recognizing the Psychological Traps of Opponents**

First Principles: Technical patterns are “psychological blueprints” drawn by opponents.

Why does the market go down when you buy and go up when you sell? Because your trading actions are exploited by two types of opponents:

1. Targeting “opponents about to be trapped” —诱多/诱空陷阱 (诱多:诱导多头, 诱空:诱导空头)

Price breaks a false high, luring retail traders to chase longs, only to quickly fall back, trapping the chasing longs as “new trapped opponents.”
· These newly trapped traders are unwilling to cut losses, either holding on until liquidation or cutting losses at even lower levels, becoming selling pressure during subsequent declines.

2. Targeting “opponents about to profit” —派发/吸筹

At the end of a trend, rapid rises create illusions of “more upside,” making profit-takers reluctant to sell; simultaneously, they attract chasing buyers, allowing early profit-takers to exit calmly.
A massive stagnation at the top signals distribution to chasing buyers.

Human Weakness: “Anger”: Emotional trading. After being trapped, instead of cutting losses, traders add more, trying to “recover,” but this turns a small loss into a deep one, making them the biggest prey for opponents—either liquidation or cutting losses.

Skill Practice:

Watch open interest: Rising prices with falling open interest indicate profit-taking and potential danger; falling prices with rising open interest suggest bottom-fishing and possible reversals.
Watch volume: Large volume at key levels often indicates concentrated liquidation or cutting-loss orders, usually signaling a pause or end of the trend.

**Chapter 4: Qi—Tracking Opponent’s Tracks**

First Principles: The gap in tools is the gap in cognition.

Your opponents may be using on-chain data analysis tools, monitoring large inflows and outflows on exchanges, even tracking funding rates and long-short ratios. If you only look at candlesticks on your phone, it’s like fighting blindfolded.

How to use tools to track two types of opponents:

- Tracking “potentially liquidated opponents”: Observe long-short ratios and liquidation maps. When the ratio is extremely skewed (e.g., too many longs) and the price nears a large liquidation line, it indicates many retail traders chasing longs at high levels—these are potential “liquidation targets.” Usually, a waterfall is not far off.
- Tracking “potentially cutting losses opponents”: Watch funding rates. When funding rates are abnormally high, it shows longs are willing to pay a premium to hold positions—these traders have high costs and fragile psychology. When prices fall, they are the first to cut losses.

Human Weakness: “Slowness”: Information lag and slow reactions. By the time you see the situation clearly, opponents have already completed their layout.

**Final Chapter: Break the Heart’s Thief, Become the Hunter**

Wang Yangming said: “Breaking the mountain bandits is easy; breaking the heart’s bandit is hard.” In a contract market where opponents are everywhere, our greatest enemy is the heart controlled by greed, anger, ignorance, doubt.

How to resolve mental state issues?

1. Sit quietly to break the thief of anxiety: Anxiety stems from the unknown. When you realize that every trade is a game of hunting and being hunted, and your profits come from opponents’ liquidation or cutting losses, you won’t fear temporary paper losses—only calmly judge: Am I the trapped opponent or the profitable one? Am I about to explode someone else’s position or be cut by others?
2. Let go to break the desire thief: Abandon the illusion of capturing all volatility. The head and tail of the fish have bones; leave them for “the last bag holder” to eat. Only eat the safest part—the moments when opponents admit defeat.
3. Practice in action to break the hesitation thief: View each stop-loss as “paying the market a premium as planned,” and each take-profit as “stealing the spoils from opponents’ pockets.” Only through repeated execution can you engrain the game mindset into your bones.

Conclusion:
Use Tao to govern Shu, solidify the heart with Fa, leverage Shi to rise, rely on Qi to survive, and think like your opponent to break the heart’s thief.

When you no longer just stare at candlesticks but can see through the screen to the other side:

- The trapped opponent hesitating in despair, whether to liquidate or cut losses,
- The profit-taking opponent greedily contemplating when to exit,

then you have truly evolved from a “leek” into a “hunter.”