INTRODUCTION
Crypto Trading especially futures tends to be very volatile and most newbies face a significant problems in tackling this volatility .
I believe Crypto is 10% Technical Analysis, 10% Emotions and 80% Risk Management.
How ?
Stick with me as we delve into the complexities of Crypto Trading . Where i will be providing some very important tips and overall boost your arsenal of knowledge and possibly show to you a whole new side of crypto trading.
Note: While writing this guide i will be presuming the reader has sufficient basic knowledge like how different platforms like binance and tradingview work. And other basic know-how regarding different terms of trading. Lets get into it.
RISK MANAGEMENT IN FUTURES
Assume i have a futures portfolio of 100,000 $ .
Now consider the following chart i posted previously (Here for previous post):
First Thing you have to learn is position sizing . What is position sizing ?
Its the amount of a security/asset which you long/short (buy/sell) according to your risk appetite.
Where is it relevant in binance ? Shown below.
Now the first thing i need you guys to do is head over to trading view or just open the binance futures interface you can do this on binance as well . Open any chart , and draw a long position/short position setup on the chart. Example is illustrated below . Consider the previous chart .
Now double click on the position drawing , This will pop up.
Here we set the account size to 100,000 and risk to 1.00 % (I personally recommend this to beginners), this basically means that if our stop loss is hit on this trade then 1% of our account will be lost. The entry, stop loss and TP of the position can be adjusted directly on the chart so you dont have to write it in this interface unless you want extreme accuracy.
Next go ahead and press OK. Now notice the "Qty" or Quantity on the setup. This is basically the position size we need to open on the chart.
Now lets go ahead and input this into Binance Futures.
For this example we have chosen our entry price as 151.928
The position size has been rounded off to 171.
Our stop loss is 157.77 , which means we expect to lose 1% (1000$) if our stop loss is hit.
Our TP is 129.696 . With a Risk Reward Ratio of 3.8 . (I never go for lower than 3 RR Ratio)
For this one i shall be using 100x leverage , although that does not really matter. You can use any leverage size and it will not affect your position , because leverage only decides how much of your margin is used in the position , the Position Size Remains the same.
After inputting these into advanced TP/SL in binance ( You can use the normal TP/SL too , i am doing this to show you the results). As you can see its extremely accurate .
To illustrate why leverage doesnt matter overall, lets try same thing on 20x.
The only thing leverage matters for is if you are someone who prefers holding multiple positions at the same time then you use higher leverage. If you hold fewer positions then you use lower leverage. Once again , it doesn't really matter , the position size is what matters.
If you are a beginner , never use more than 1% of your account size in a single position ( though most people don't listen , i didn't either when i was new lol ) . Just know your risk appetite and don't risk what you can't afford to lose (Especially if you have more than just play money in futures).
HOW YOU SHOULD DIVIDE YOUR PORTFOLIO
I ill quickly give you guys my own preference of portfolio division .
50% in spot long term
20% short-mid term spot.
20% low cap coins spot (On-chain plays which are not found on exchanges)
10% in futures to play around and learn (and potentially earn) with .
Supposing my futures account size is 100,000 , you can assume my total portfolio would be around 1 M $ . (For examples sake)
HEDGING
Hedging basically means longing AND shorting on the same security/contract/coin .This is something extremely useful which i consider one of the key aspects of risk management. So once again consider the SOL chart i sent but before that in case you are wondering how to turn on hedge mode on binance . ( basically how to turn on the option so you can open multiple positions on a single coin in opposite directions)
Once you are on the binance futures interface look at the top-right corner,press settings option.
Then an interface should pop up , there click on position mode and change it to hedge mode.
Alright now let me tell you this beforehand , this might get a little complex and boring for you so stick with me , it will be worth it.
Heres what i had in mind while deciding my hedging strategy on SOL. I recommend you read all of this to get an idea of how hedging works. .
I am overall bullish on the market (for the duration of my trades at least).
Point 1 is where i entered long positions , i took my initial profits at TP 1 And set my Stop Loss to Breakeven/Entry Price there.
Then As you can see on Point 2 we have a potential resistance (it goes by many different names i will call it resistance)
There i had the thought that the price might start to do another range play and come below to our support at Point 1 once again (I have confluences which i wont't share in this post for the sake of simplicity)
So from Point 2 i entered a short which was risky because it was going against the trend, for that reason i took my initial profits on the closest TP/Structure Point i could find where price could bounce off of.
Now what you have to understand is the fact that i further minimized my risk by hedging my positions.In other words my short from point 2 wielded me short term profits . And it is still running, Position 1 also wielded me decent profits already. Now the unrealized loss of my short has been offset by my long position.
So basically both my positions are already running safe and in profits , it doesn't matter to me if the price goes up or down because the loss from one position will be offset by the other. And again my stop loss on my short position is such that if it gets hit it basically means that price should continue moving upwards which will encourage me to hold my long position till final TPs.
Lastly , if the price had broken the TP 1 point on my short position i would have closed more of my long position because then i would be expecting price to come even lower because of no visible supports there.
Now all of this is subjective and depends on your trading strategy and confluences . The main point is to always take profits and never be exposed to only one side of the market.
Yes it takes some time and effort to get this done, but its worth it in the end.
All thats left for you to do is get some screentime and practical experience on the charts. I would recommend you spend some time at least paper trading . If you desire to have more practical experience then you can do futures but don't focus on making money for now ( yes know we are all in it for the money ), focus on the trading , focus on execution and getting a feel for the markets. Throw some play money into it and for the majority of your portfolio stick to spot till you become confident.
The whole point of this article was risk management , thats why i haven't talked on entries and trading strategies or how you should look for entries on a lower timeframe for confirmation and all that . Those topics would require an enormous amount of time and effort .