Cryptocurrency trading is extremely lucrative. In 2017 some cryptocurrency markets produced gains of +10,000% ROI. Unfortunately, most participants tend to chase the highs and end up losing +80% of their portfolio value.
We keep seeing the same mistakes being played out. If you find you are just getting into crypto, here are 5 ways to help manage risk.
- Start with Small Size
If the markets gain +10,000% in a short period of time, it is the best waiting for the lows of the next market cycle. The problem is that you may get excited about cryptocurrency and want to rush into it full on. You must first learn to walk before you can run.
Many beginners lack patience and think that they know more than they do. There are many cases losing money including errors, scams and hacks, so due diligence is a must. You should make it your goal to learn as much as you can about crypto before you risk large capital.
Start off with small size and move slow. It is completely different between theory and practical application. The most profitable cryptocurrency traders and investors are the one who is cultivate patience.
- Always have a plan
The markets are in a constant flux of possibilities and probabilities. When it comes to trading, there are no absolutes, so planning for possible outcomes allow you to be prepared. The traders who take the most damage are the ones who are stubborn about being “right”.
You need your own rules and plan including trading set-up, a breakout/down trade, a short/long term, scalping.
- Your Trading Position Size
Position sizing is one of the most recommended method of risk management.
Many traders and investors jump into the market too fast. If you went in the market with heavy at the 2018 highs, then you do not have dry powder left to buy anything at lower prices. You are probably suffering through a +90% draw down.
During bear trends, it is important to be very conservative with your capital and save your assets until extremely low prices or confirmation of a reversal.
- Take profit and Stop-loss
It is generally a nice idea to minimize losses by cutting out duds and scale out profits along the way on winning trades. Your profit targets and risk management strategy are entirely based on your trading style and rules.
If you are a long-term investor, then you may decide to position size and average down during accumulation. And you hold for substantial multi-year gains. If you trade on leverage measuring risk to reward, you will likely have a hard stop and clear take profit zones. A combination of both approaches can be used for multi-week swing traders.
- Lock in hard profits and diversify
It is generally a good idea to cash in some of your chips to lock in hard gains. It means pulling money out of the cryptocurrency markets entirely and diversifying it elsewhere. If you manage doing this, you’ve already won the game.
If your portfolio grows to a point where it can better your standard of living, then you have the ability to lock that reality in. You should be careful with insatiable greed. When you are in doubt, the middle path may be the best path. Having different capital buckets of short/long term holdings can be a win-win approach.
The other key benefit to locking in hard profit is taking the edge off of your trades during the bear season. Be relaxed about your trades and it can give you an emotional edge over traders who are constantly stressed out.