Splitting your capital into 5 parts and making 20% deposits is a common risk management strategy, especially in volatile markets like cryptocurrencies. Here’s how it works:
How to apply the rule:
1. Splitting your capital: Take the total amount you’re willing to invest and divide it into 5 equal parts. This means that each part represents 20% of the total.
2. First deposit: Make an initial deposit of 20% of your total capital. This avoids exposing all of your capital at once, especially if the price drops shortly after you make your deposit.
3. Additional deposits:
If the price drops, you use another part (another 20%) to buy more, reducing your average deposit price.
Continue to make incremental deposits as the market moves, up to a limit of 5 purchases (100% of your capital).
If the market goes up after your first deposit, you’ll already be positioned to take advantage of the appreciation.
Advantages of this approach:
Risk management: You don't expose all your capital in a single operation.
Average price: It allows you to improve your average entry price, especially in cases of unexpected drops.
Discipline: It imposes an objective system for entries, reducing emotional decisions.
Tips for improving your strategy:
Set clear criteria: Define in advance when you will make entries (for example, every 5% drop in price or after specific market events).
Stop making entries if the scenario changes: If the market shows signs of a complete reversal, consider pausing new entries.
Combine with stop loss: To protect your capital, it is also important to define a maximum level of acceptable loss.
