Risk management and controlling risk is probably the most important skill you need to learn as a trader. If you don’t want to suffer unnecessary losses, we’re going to share 5 risk management practices that will protect your account and help you stay in the market for the long run.
#1 Only Trade a Size that You’re Going to Be Comfortable With
What is going to determine how much money you’re going to make or lose in trading is risk management. Trading with too much capital on a single position often creates too much risk. Make sure you only scale up your position size to a level that matches your trading skill level.
#2 Limit the Use of Leverage
Leverage in trading involves using borrowed funds that allow traders to increase their exposure beyond the initial deposit. While leverage increases the potential profits, it also increases the potential loss. Even a small mistake can cause a significant loss if you misuse leverage, especially in the highly volatile cryptocurrency market.
#3 The 2% Rule
The 2% rule means that you’re not going to risk more than 2% of your available capital on any given trading idea. It can be easy to get greedy, especially in the cryptocurrency market, but you need to develop the discipline of following the 2% rule. You can’t control the outcome of a trade, but you can control how much you’re going to lose if the trade goes against you.
#4 Have a Stop Loss
Emotions can quickly take over our trading decisions when we’re in a trade; that’s why using a stop loss every time we take a trade can help us not only limit the potential loss but also to bypass any poor decision-making.
#5 Trade Quality over Quantity
The quality of your trades is more important than the number of trades you take. Overtrading is often the cause of poor risk management, leading to unnecessary losses. The key to effective risk management is to choose quality over quantity. This implies grading your trade setups and only taking A-graded trades that will be conducive to your strategy.
When it comes to trading cryptocurrencies, there is no such thing as a guaranteed profit. However, by managing risk and taking responsibility for your own trades, you can increase your chances of success and avoid making costly mistakes. By following the tips in this article, you will be on your way to becoming a more responsible and profitable cryptocurrency trader.
Originally published at https://www.cryptohopper.com.
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5 Ways to Manage Risk and Take Responsibility When Trading Crypto was originally published in The Capital on Medium, where people are continuing the conversation by highlighting and responding to this story.
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