4 Tips For Risk Management in Cryptocurrency Trading

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When it comes to trade, you should take some steps to reduce your exposure to the extremes of price volatility on the market.

To order to determine the true value of a company or properties, a mixture of technical and fundamental analysis can be used to ensure greater success with a particular investment, while reducing the risk along the way.

But you need a strategy for that.

Control Your Emotions

Developing a good risk management strategy is critical to mitigating unexpected results and raising the losses overall.

A successful risk management plan should also run in parallel with your crypto-trading logs, work together to curb poor trading behavior and at the same time to justify your essential expectations.

Tentation often results in poor choices and is not viewed more than a competition driven by fear and covetousness.

Through adverse or negative trade activities, one can expect that income can increase without too much.

One important component of an effective risk management strategy is to decide which trader you are and where your skills are at present:

  • “I generally break-even”–If this happens it can be an indicator that you have effective risk management, you are also too reckless and will not capitalize on anything large, or you can hardly cover trading costs.
  • “I do a small profit”–if this happens, it might be a sign that your risk management is successful, but also an indicator that you don’t want your business to run. Their emotional judgment is usually driven by quick decisions, such as closing a place too early because of what is known as the “weak hands.”
  • “I make a big profit.” –When this happens, it’s a sign that your risk management plan works well and you reach a peak of risk aversion by applying trading sizes to the right danger. This usually indicates that you close positions and allow other people to take the course at predetermined rates.
  • “I usually lose.”–When this occurs, it can demonstrate that you have limited market cycle understanding, that you need to further research the asset class you invest in and that you continue to pick illiquid projects/coins/tokens.

Other people will give you a rough idea of where you are actually in your trading mindset. The idea is to find out what habits cause you to lose and what habits lead you to benefit.

Try to remain stoic and reasonable, eliminating emotions from the psychological aspect of trade while relying exclusively on information such as price, volume, news, and trends.

Don’t Put All Your Eggs In One Basket

Regardless of how enticing or exciting a special trade opportunity might seem, it is never a good idea to put all your interest on the line.

Generally, an expanding of a certain asset class category (and also a generous mix of different asset classes in your portfolio) is an important measure to minimize your exposure to greater price fluctuations within a certain industry/market.

The instability of the cryptocurrency market means that every transaction, even an almost perfect trade, will fail and lead to a substantial loss. It is, therefore, best to start investing in 5 or more different coins.

Always remember to use the interchange stop loss feature to your benefit when you are removed from the trading process manually, such as resting or working hours.

New traders frequently struggle to follow an appropriate exit strategy, because they often come back to their computer to find their favorite crypto basket dropped 20 percent and a new trend has emerged. This not only reduces your risk, but it also allows more control over your losses.

Protecting Your Capital Must Be Your First Priority.

Protecting your capital is more important than generating a lot of income in risky trading.

Even the world’s best signals will blow you up and send you home on a dairy train unless you have a sound money management strategy. This is bad news. This is bad news.

On the bright side, you should know exactly how to handle your crypto-trading risk after reading this article for 7 minutes.

We saw hundreds of crypt traders who began great with technical analysis but lost nearly all their money and left simply due to their lack of risk management.

Massive fast potential profits are tempting, but as a professional crypto trader protecting your capital must be your first priority. — Shyam Shankar

Economic cycles are ongoing, and there will be periods when the market prices lead to a variety of losing companies. To make massive long-term gains, you must use risk management techniques to increase the chance of becoming a high-profit investor.

Position Sizing

Never Risk More Than 1% of Your Trading Account

We recommend you never risk more than 1% of your trading account per company.

What’s behind that reasoning?

When you limit your risk to 1 percent of your trading account for each transaction, you almost guarantee long-term sustainability.

Although you are very unlucky and you lose 20 trades in a row, you still have about 80% of your initial balance.

Small losses such as these can be overcome with several profitable trades, and new heights can again be reached.

Therefore, the risk in each trade is smaller and smaller during the losing streaks.

Also, this is a reverse compounding effect.

In the previous article, you saw how stable earnings are gradually increased by compounding.

The opposite is true, too.

When you experience a losing streak, the defeats will gradually decrease.

The prospect of a fixed percentage per exchange means that your stack uses the power of compounding while taking advantage of the reverse compounding when it falls.

Risk/Reward Ratio

You must know the risk/reward ratio before you enter a business, or you will end up doing risky business and eventually lose your money.

This ratio indicates the expected return on a particular trade compared to the risk taken.

The lower the number, the more dangerous the trade will be.

This method can be used to measure your risks/rewards manually: (Target-Entry)/(Entry-Stop Loss) If you want to be more effective and save time, use the Long Position or Short Position Trading View tool to test your risk/reward:


Simplified cheat sheet:

  • 1:1 and Lower = Never trade
  • 1:1 = OK
  • 1:2 = Great
  • 1:3 and Higher = Ideal

Know-How Much You Are Risking

Then the question is, how much money are you putting on the business?

A novice sometimes selects a number such as $3,000, 0.3 BTC or 15% of the stack.

Alternatively, measure how much each trade you can afford to lose.

Do not risk losing more than $300 per trade if your account size is $30,000, and you plan to pay 1 percent for every trade.

That simple equation makes it easy to measure your maximum risk: account size/100= your maximum $risk.

It is here that people are often puzzled. This does not mean that you have $300 to join the trade. Alternatively, what it means is that if your company hits stop losing, you will lose $300.

For instance, if your trade stack is $30,000 in size, you can risk $30,000/100=$300 per trade.

So let’s go back to business.

You were told to enter this company at $9350.

Imagine the price decides to fall and your loss stops at $9193.

To efficiently calculate your position, you also have to calculate the maximum piping risk.

What is Pip? What is Pip? Pip is just the movement of rates. When the price has changed from 100 to 101, the pip is 1.

Pip = Price movement

With the difference between the entry price and the stop-loss price, the overall probability for any pipeline movement can be estimated.

Maximum pip risk = Entry price — Stop loss price

$9350–$9193 = $157

In this case, you can lose a maximum of 157 pipes.

If your business hits stop losing, you’re going to lose 157 pipes. You have decided to risk the exchange for $300. Your trade must, therefore, be so high that each pip is worth $1.91.

Pip value required for trade = Dollar risk / Pip risk

$300/157= $1.91 Per pip

Had you selected a size right, which would only expose you to $1.91 risk per pip, you’d have to take a $300 loss, which is just 1% of your $30,000 account.

Always Use Stop Loss Orders

A stop loss is an order placed on your trade which closes a trade if it moves against you to a certain level of price.

The stop loss is intended to stop a loss after some time.

Each time you put an exchange, you must also have an end loss on an alert or a set exchange order.

If your position is not accepted by the market, it can then only go down to a certain point after which the exchange is terminated for a small loss.

High-profit crypto traders always set a stop to losses that invalidate the original idea.

If a loss stops, a high-profit trader is not emotionally frustrated to earn the money.

Many traders find it to be stopped as bad.

Losses are inevitable and you have to make them comfortable.

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