“Risk-less/Gain-More” Risk Management strategy in Crypto Trading

Risk management is the basis of every successful trader. Since the crypto market is driven by tremendous volatility, preserving the capital has a higher importance as profits arise from consistent good behaviors than trying to predict winning trades.

In the following sections, we are going to overview the essentials of risk management and their role in preserving the balance to keep us participating in the market even during a losing streak.

A platform like Altrady emphasizes the importance of risk management through its wide range of tools properly designed to facilitate aspects of execution and protection of trades, making it the best option to get features like the following:

1. Smart Trading: Protect positions with advanced settings of take-profit and stop-loss orders. Set position sizes automatically based on risk and avoid stop-hunts by protecting trade entries with the unique Cooldown and Protection feature.
2. Risk-Reward Calculator: Improve trading strategies with amazing calculation features for portfolio equity, account equity, and more.

Risk Management for Crypto Trading

Position Sizing

The size of a position determines how much of their capital the traders are willing to lose per trade, which is calculated as a general percentage over the capital, for example, 1% or 2% risk tolerance per trade.

While this percentage is a general calculation, the position sizing is specific. It means that the size of a position should not exceed the risk tolerance regardless of the price of the assets or the number of coins or contracts that the trader can afford to open a position.

Stop-Loss Orders

The stop-loss is an order that sets the price at which the trade should be closed in case the trade turns against the initial forecast.

This can work in three ways:

1. Limiting losses: when the price starts going against our position right after opening it.
2. Breakeven: When the price starts going to our take-profit targets and the position is already a profitable trade, but then the price returns. The trader can adjust the stop to the opening price, setting the trade to break even.
3. Trailing stop: When the trade is consistently profitable and has reached at least one take-profit target, but the trader wants to extend the profits, then moves the stop to new prices as the position remains profitable, practicing what is known as trailing stop.

Take-Profit Orders

Like the stop-loss, the take-profit orders set the price targets at which the position should close, in this case, with profits.

A popular way to use this type of order is to set at least two targets. The first will sell one part of the position and the last the other.

For example, the first target gets 60% out of the trade, and the second target gets the 40% left.

Risk-Reward Ratio

The risk-reward ratio works in correlation to stop-loss and take-profit orders; it calculates how 

many times the reward doubles the risk assumed.

For example, if a scalper has a ratio of 1:3, it means that the reward is three times the risk. In 

other words: if a trader risks 1% in a position, the reward at the closing of it will be 3%.

Learn more about scalping here!

This concept is important to measure the profit factor, which is the overall performance of the capital and it is crucial to understand how profitable a trader is.

Diversification

For long-term traders and holders, building a diversified portfolio is the best approach to offset losses in certain assets. It could be diversified by sub-industries, from secure to riskier coins.

Let’s see the following table:

Conclusion

As we have seen, risk management is the key to successful trading. It provides the necessary concepts to manage and set up trade entries.

A good risk management practice goes with the hand of a well-developed trading plan. Remember to diversify, look for the best risk-reward ratios, and protect your trades with stop-loss orders.

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Steven Schuster

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