Good day to all! The topic of today’s video is money and risk management in cryptocurrencies. I will tell you how to properly manage your deposit, observe risk, money management rules, lot size, and positions for trading and investing in digital money. Let’s get started!
Money management in cryptocurrencies
Trading cryptocurrencies is a work with a high level of risk, here you are more likely to lose your investment than in the stock market or forex. This is due to the high volatility of digital money and market manipulation by large traders (whales). Therefore, it is important to learn how to manage risks, determine the likelihood of the outcome of unsuccessful trades and cut losses in time.
Basic rules of risk and money management. The first rule is to limit the risk of capital. The total amount of all transactions must be 15-20% of the deposit, and at least 80% of the funds are not involved. The second is to limit the risk of the transaction. Maximum in one deal, you can use 0.5-1% of the deposit. After you close the trade by Stop Loss, your losses will be no more than 1%.
The third is the profitability of the transaction. To make money on crypto and cover losses from Stop Loss or negative market closings, your target profitability (Take Profit) must be 2-3 times higher than Stop Loss. For example, you bought 1 BTC for 10,000 USDT, Take Profit 6%, at 10,600 USDT for BTC, and Stop Loss 3%, at 9,700 USDT for BTC.
Risk management in cryptocurrencies
The recommended number of trades for different coins is 1-3 trades if you trade manually. If you use 3commas cryptocurrency bots, then you can make 5-7 transactions. The above approach refers to the conservative and safest trading style. There is also a moderate trading style (2-3% of the deposit per trade) and an aggressive style (5-7% per trade). As for investing in promising coins, this is 5% of the deposit.
Moderate and aggressive trading brings more income, but in the event of a series of unsuccessful transactions, you can lose 50-100% of the deposit, and it will take a long time to recover it. Remember the rule – the higher the risk, the more income, but there are also more chances of losing several times. And the less the risk, the less income, but you are guaranteed to preserve your capital.
Beginner traders often make the following 3 mistakes. 1) Emotional deals. After a series of successful trades, overconfidence, and greed. Or vice versa, after a series of unsuccessful trades and Stop Loss, the desire to recoup and return the losses. In most cases, such transactions are doomed to lose. 2) Using the entire deposit in one or several transactions.
The trading lot and position size in cryptocurrencies
I already wrote above that it is important to leave at least 80% of the deposit free in USDT so that you can save the capital for future successful transactions. Or to average unprofitable trades through SmartTrade and safety orders in 3commas bots. If you enter trades with your entire deposit, you will have no money to recover if the market falls down.
3) Complete absence of Stop Loss or averaging. If for some reason a trader does not want or is unable to place Stop Loss, he should use the averaging strategy available in SmartTrade and 3commas bots. Now I want to say a few words about how to calculate a trading lot and position size in cryptocurrencies. For example, our deposit is 1000 USDT.
We want to buy BNB at the current time of $ 500 per coin. According to technical analysis, set Stop Loss at $ 475 (5%). We will use 1% of our deposit, that is, $ 10. Potential loss on Stop Loss ($ 10 – 5%) will be $ 0.5. Our Take Profit should be at least 10%, that is, at the level of 550 USDT for BNB. Therefore, the profit should be 1 USDT, respectively (10 $ + 10%).
The profit of course looks small if you have a small deposit. But if you learn to trade profitably, in the future you can increase your risk from 1% to a maximum of 5%. In addition, there is still leverage on Binance Futures to increase your income (but the risk also increases significantly). However, futures trading is only suitable for experienced traders.
The video on the topic of risk and money management in cryptocurrencies is coming to an end. I have told you the basic rules and guidelines for managing your deposit and adhering to risk when trading and investing in digital money. This is one of the important topics that will help you not only earn money but most importantly save your money. That’s all until new videos on botcryptotrade.com