Guide for risk management in crypto trading

risk management
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Trading is a risky business and more so when you are trading a highly volatile asset like crypto. While crypto has made several small-cap traders millionaires, the highly volatile asset has also left many traders stranded. Crypto volatility could be extremely erratic at times but it’s often the disorganized approach of traders that leave them with devastating losses. Non-acknowledgement of probable risk factors is a major hindrance to organized and systematic trading. Traders should rather be careful about recognizing the risk factor and planning the trade around it. convert cryptocurrency to fiat forex or another crypto

Risk management is the key to safe and successful trade, be it crypto or any other trading asset. The post below offers a brief on the tips to remember to ensure systematic risk management in crypto trade.

Systematic risk management tips in crypto trade

Set a plan

One of the common mistakes seen with amateur traders is trading without a structured plan.

When you are taking part in a risky venture, the first thing to go for is a systematic and meticulous plan. The plan would cover all major details about your trading venture, such as when you would open, your exit point, how much to allot for each trade, which cryptos to choose, where to trade, and so on. The plan would serve as a blueprint or guide that would show you the way as you would proceed in the trading world. Most importantly, the plan would prevent us from getting lost in the mid-way.

Limit trading capital

There is a common saying in the crypto world that say that you must allot only that amount that you would be able to lose. Crypto, as you know, is a terribly volatile asset. If your chosen coin suddenly takes a downturn, the dip could be pretty steep. Thus, you should proceed with this mindset that you might encounter a downswing and losses any time. But, you also need to make sure that the loss won’t  affect your basic financial future.

Put simply, you must make sure to start small. According to experts, you should not deposit more than 2% when you are starting out with your trade in the crypto trading world. Later on, you might increase the capital to 5%. If you are planning to opt for day trading, do not offer anything over 1% for one single trade.

Gauge risk-to-reward ratio

Crypto traders are aware of the high risk factor associated with every trade. But the key factor that motivates them  to take the leap is the lure of higher returns with crypto trade. But, then not all cryptos and types of crypto trades would be able to offer high rewards. Thus, it’s crucial that you check the risk-to-reward ratio of your chosen crypto and trading format beforehand.

Crypto traders generally go for a range of 1: 1.5- 1:3 ratio. Focus on those cryptos and crypto trades that usually offer 1: 3 ratio which implies that the trade would extend  a reward that would be 3x bigger than the  risk. Don’t go for a trade that concludes with 1:1 since this ratio represents a break-even point- a point where there is neither loss nor profit.

Stop Loss

Never bring your stubborn ego to the table when you are trading and that too a highly volatile asset like crypto.  If you are losing, accept the fact that losing is common for all traders and it’s better to take a break for a while. But, some traders are too stubborn to stop and they tend to keep on trading hoping for a positive outcome. But, things might not go as expected and these traders could end up with even further losses.

Thus, set Stop Loss points that will set the benchmark for the last level of loss for a  single trade. You would stop trading once the loss level touches that point.

Take Profit

When it comes to smart risk management, you should know when to exit, even when you are making a big profit. It’s because, if you don’t stop, you never know when the market might take a downturn, leaving you with sudden losses. The Take Profit level will set the benchmark for your last level of profit for a trade. You must make sure to stop the trade for a while once you reach the mark. buy bitcoin

Finally, settle for crypto that has been showing high trading volume.

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