Apply 1-2% Risk Rule For Each Trade
This is a popular and effective capital management principle. Accordingly, you should only risk 1-2% of your total capital for each transaction. For example, with 10,000 USD, you should only risk a maximum of 100-200 USD at a time. This rule helps protect your account from large losses and maintains long-term stability.
Set Specific Stop-Loss Levels
Stop-loss is an important tool to protect capital. Before placing an order, it is necessary to set a clear stop-loss level to automatically close the order when the market moves against your prediction. This helps limit losses due to unexpected fluctuations. Stop-loss levels should be set at important support and resistance levels or based on technical indicators such as ATR.
Allocating Capital Across Multiple Asset Classes
To minimize risk, do not put all your capital into one coin. Instead, divide your capital into many different assets, from major coins like Bitcoin, Ethereum to potential altcoins. This helps protect your capital if one coin drops sharply.
Applying the Risk-Reward Ratio
The risk-reward ratio is an important factor in determining the expected return relative to the risk. The ideal ratio is 2:1 or higher, meaning the expected return is twice the risk. This ensures profits even if there are many losing trades.
Increase Position Size Cautiously
When you see a positive market signal, you can increase your trading position but you should do it slowly. Each increase should follow the 1-2% risk rule to maintain capital safety.
Limit Using Too High Leverage
While leverage can increase profits, it also increases the risk of losing capital. Use leverage wisely, in accordance with your risk tolerance. For beginners, it is recommended to limit or only use low leverage.
Maintain a Transaction Log
Recording every trade along with money management decisions will help you learn from experience and improve your strategy. A trading journal helps you re-evaluate factors such as risk ratio, market entry/exit timing to improve future performance.
Conclude
Effective capital management not only protects assets but is also the key to sustainable success in cryptocurrency trading. Regardless of whether you are a short-term or long-term trader, reasonable capital allocation and adherence to risk principles will help you overcome market volatility and maximize profits.
