I just wrote the most important part of trading that you need.
this will help you to stay profitable and manage your risk.
Give it a read & Make sure you leave a feedback there.
The Art of Risk Management in Trading
LIVE
CRYPTO MECHANIC
--
Learn The Art Of Risk Management | Trading With Confidence
It takes money to make money. Everyone knows that, but how you're going to manage that money ? The sad reality of Crypto is people join it to be rich overnight, That's the kind of dream they have been shown but no one tells them more people lose money in crypto only a few make it.
Drawdowns are a reality and WILL happen to you at some point.
The more you lose, the harder it is to make it back to your original account size. This is all the more reason that you should do everything you can to protect your account. This is what we will discuss in today's article how you can avoid these trading losses.
There are different type of #RiskManagement strategies that you can apply while trading and that includes:
DiversificationStop losses / InvalidationRisk & RewardCoin's Research
We will discuss these strategies one by one
Diversification
Ever heard of "Never put all your eggs in one basket" ?
Diversification in trading is basically making sure that you don’t end up overexposed to any one coin. You can't just put all your money into one coin it does not matter how much you trust that project or even if it's the project of your best friend. You never know what can happen in crypto next moment so make sure you put only the amount that you can afford to lose.
Remember Luna crash in 2022? $40 Billion dollar marketcap was wiped out in no time. There are countless examples like this where people lose tons of money just because they put it all into one coin.
So what is the best strategy?
Diversify your money into different coins and different categories. You should not spend it all into one category Also. Let's say you like Ai category or you Like Meme coins but this does not means you buy different coins of the same category. it's as the same as going into one coin because when a category gets the hype most of this coins within same category moves and same goes with the downside.
Diversify your capital into different categories. it can be a combination of Ai , Ecosystem , Meme , RWA , Gaming and so on.
Using Stop- Losses / Invalidation
You take a trade and risk money because you have an idea and your idea may reach point at which it is most likely no longer correct or, at the very least, evidence suggests that the probability of the idea coming to fruition is reduced such that the risk is no longer justified This is known as an invalidation
If your idea doesn't have an invalidation, reconsider it
If your idea doesn't have a basis in the first place/there is no idea, go back and plan it.
Now there are different type of invalidations that you can use for your trading.
Price-based
The idea is that X level is support, invalidation = if X failed to act as support
in price based invalidation you just simply draw a level and place the stop loss just under it , You do not wait for any candle close or anything. In the picture above your idea was invalidated as price dropped under your support line.
Time-based / Candle close invalidation
The idea is that price should (consecutively) close above X to suggest a breakout, invalidation = closing below X
You take a trade and continue to hold it as long as price holds above your support level and you don't count the wicks. This is manual stop loss, you cut your trade when you see candle close below your support level.
Volatility-based
You expect that once Daily candle open or it can be any candle it can also be a session like asian , London or newyork Open price gonna moon it, wait, where on earth is the bid?' invalidation
The idea is that price will move during these ours and your invalidation = price not moving as you expected.
I was expecting A big green candle but I'm getting nothing, I am closing this trade now.
All of these strategies are correct you can choose any that works better for you.
Risk & Reward based Management
This means how much money you're risking to make X amount of money.
Let's say you buy something at $100 and your stop loss for that trade is $25 and you want to make $50 from it. This means you're risking $25 to make $50 and this makes it a 2R trade which is a good trade setup.
Your stop loss should not be bigger than your take profit.
This is the first criteria to open a trade then comes the trade management.
Suppose you buy Bitcoin at $61150 , you take profit is $64300 and your stop loss is $59600. To make it easier for you to understand lets say you buy at 50 your stop loss is 25 and your Take profit is 100
Suppose the market pushes from 50 to 85 and starts to struggle. you should reassess the risk to reward calculation to assess if staying in position is justified in the absence of any management. With the market at 85 and your stop and target unchanged, the risk to reward of the trade has become 0.25R→ you're risking 60 points to gain another 15 (at an area where the market appears to be shifting)
Instead, it's there as a wake-up call or trade management signal once the market approaches your take profit but you start to notice the weakness in market and think that it can turn back down from here. it is always better to take partial profits and keep the position running for more upside or you can also move your stop loss in profit right under the area you think price should not break. See the example below
This strategy will always help you to exit your trade in profit rather watching it going up and then coming back down to your entry or hit the stop loss.
Just like that You don't always have to wait for the market to take your stop if there's compelling evidence that probabilities have shifted against you. Cut your trade before it hits your stop loss.
Conducting Research Before Investing
it's always better to do your due diligence before you invest into any coin.
Research what the coin is, Which Category they are focusing on , What are their future plans , Their investors. How much supply is locked and how much is circulating and how big the size of their community is.
This will help you to decide if you should invest in that particular coin or not.
This is it from my side, I hope you learned something from this Article. I would love to read your feedback.
Drawdowns are a reality and WILL happen to you at some point.
The more you lose, the harder it is to make it back to your original account size. This is all the more reason that you should do everything you can to protect your account. This is what we will discuss in today's article how you can avoid these trading losses.
There are different type of #RiskManagement strategies that you can apply while trading and that includes:
DiversificationStop losses / InvalidationRisk & RewardCoin's Research
We will discuss these strategies one by one
Diversification
Ever heard of "Never put all your eggs in one basket" ?
Diversification in trading is basically making sure that you don’t end up overexposed to any one coin. You can't just put all your money into one coin it does not matter how much you trust that project or even if it's the project of your best friend. You never know what can happen in crypto next moment so make sure you put only the amount that you can afford to lose.
Remember Luna crash in 2022? $40 Billion dollar marketcap was wiped out in no time. There are countless examples like this where people lose tons of money just because they put it all into one coin.
So what is the best strategy?
Diversify your money into different coins and different categories. You should not spend it all into one category Also. Let's say you like Ai category or you Like Meme coins but this does not means you buy different coins of the same category. it's as the same as going into one coin because when a category gets the hype most of this coins within same category moves and same goes with the downside.
Diversify your capital into different categories. it can be a combination of Ai , Ecosystem , Meme , RWA , Gaming and so on.
Using Stop- Losses / Invalidation
You take a trade and risk money because you have an idea and your idea may reach point at which it is most likely no longer correct or, at the very least, evidence suggests that the probability of the idea coming to fruition is reduced such that the risk is no longer justified This is known as an invalidation
If your idea doesn't have an invalidation, reconsider it
If your idea doesn't have a basis in the first place/there is no idea, go back and plan it.
Now there are different type of invalidations that you can use for your trading.
Price-based
The idea is that X level is support, invalidation = if X failed to act as support
in price based invalidation you just simply draw a level and place the stop loss just under it , You do not wait for any candle close or anything. In the picture above your idea was invalidated as price dropped under your support line.
Time-based / Candle close invalidation
The idea is that price should (consecutively) close above X to suggest a breakout, invalidation = closing below X
You take a trade and continue to hold it as long as price holds above your support level and you don't count the wicks. This is manual stop loss, you cut your trade when you see candle close below your support level.
Volatility-based
You expect that once Daily candle open or it can be any candle it can also be a session like asian , London or newyork Open price gonna moon it, wait, where on earth is the bid?' invalidation
The idea is that price will move during these ours and your invalidation = price not moving as you expected.
I was expecting A big green candle but I'm getting nothing, I am closing this trade now.
All of these strategies are correct you can choose any that works better for you.
Risk & Reward based Management
This means how much money you're risking to make X amount of money.
Let's say you buy something at $100 and your stop loss for that trade is $25 and you want to make $50 from it. This means you're risking $25 to make $50 and this makes it a 2R trade which is a good trade setup.
Your stop loss should not be bigger than your take profit.
This is the first criteria to open a trade then comes the trade management.
Suppose you buy Bitcoin at $61150 , you take profit is $64300 and your stop loss is $59600. To make it easier for you to understand lets say you buy at 50 your stop loss is 25 and your Take profit is 100
Suppose the market pushes from 50 to 85 and starts to struggle. you should reassess the risk to reward calculation to assess if staying in position is justified in the absence of any management. With the market at 85 and your stop and target unchanged, the risk to reward of the trade has become 0.25R→ you're risking 60 points to gain another 15 (at an area where the market appears to be shifting)
Instead, it's there as a wake-up call or trade management signal once the market approaches your take profit but you start to notice the weakness in market and think that it can turn back down from here. it is always better to take partial profits and keep the position running for more upside or you can also move your stop loss in profit right under the area you think price should not break. See the example below
This strategy will always help you to exit your trade in profit rather watching it going up and then coming back down to your entry or hit the stop loss.
Just like that You don't always have to wait for the market to take your stop if there's compelling evidence that probabilities have shifted against you. Cut your trade before it hits your stop loss.
Conducting Research Before Investing
it's always better to do your due diligence before you invest into any coin.
Research what the coin is, Which Category they are focusing on , What are their future plans , Their investors. How much supply is locked and how much is circulating and how big the size of their community is.
This will help you to decide if you should invest in that particular coin or not.
This is it from my side, I hope you learned something from this Article. I would love to read your feedback.
Disclaimer: Includes third-party opinions. No financial advice. May include sponsored content. See T&Cs.
Replies 11
