3 Risk Management Strategies for Cryptocurrency Trading
September 11, 2020 (Investorideas.com Newswire) A successful crypto trader is able to mitigate risk whilst trading. Here are a few techniques that traders typically use to mitigate risk whilst trading in the crypto market.
Stop Losses and Take Profit Targets
Stop losses and take profit targets are one of the basic ways that traders mitigate risk whilst trading crypto. Stop losses are vital for trading because they prevent traders from losing even more money in the event that a trade goes against them. Take profit targets are also great because all traders should be aware of when they should cash in on their position. In addition, crypto signals and crypto bots are good in eliminating emotional trading.
Position Sizing
Another great risk management technique is position sizing. With this strategy, traders will not use more than 1% of their trading capital. For example, if a trader goes on a 5-trade losing streak they would still have 95% of their trading capital.
Risk/Reward Ratio
The most successful traders are able to weigh up the risk to reward ratio of placing a trade. The risk to reward ratio formula is the following:
(Target - entry)/(entry - stop loss)
As a general rule, the following guidelines should be followed with the formula:
- If it's lower than 1:1 never place a trade
- 1:1 is breakeven
- 1:2 is great to trade
- 1:3 is even better and is an ideal ratio
Conclusion
We have only touched on a few risk management techniques and there are much more out there for you to use.
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