Position Sizing:
Never risk too much capital on a single trade or investment. A common rule is to risk no more than 1-2% of your total portfolio on a single trade.
Position sizing helps protect your portfolio from significant losses while allowing for long-term growth.
Stop-Loss Orders:
Use stop-loss orders to limit potential losses by automatically selling a position when its price hits a predetermined level.
For example, setting a stop-loss at 10% below the purchase price ensures that you don’t lose more than 10% on an investment.
Diversification:
Don’t put all your assets into a single cryptocurrency or type of investment. Diversifying across different cryptocurrencies (e.g., Bitcoin, Ethereum, stablecoins) and DeFi platforms can reduce exposure to any one risk.
Diversifying into different sectors (NFTs, Layer 2 solutions, etc.) can also provide broader protection.
Hedging:
Consider using derivatives such as options or futures to hedge against potential downturns in the market.
For example, shorting a crypto asset or using stablecoins during market volatility can protect your holdings from losing value.
Risk-to-Reward Ratio:
Always evaluate the potential reward versus the risk involved before making a trade. A common guideline is aiming for a risk-to-reward ratio of at least 1:3, meaning the potential reward is three times greater than the potential risk.