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Risk Management in Cryptocurrency Trading

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Risk Management in Cryptocurrency Trading 

When trading cryptocurrency, one has to be aware of the possibility of risk, and accordingly, how to properly manage that risk. Risk management should be a high priority for anyone looking to find success trading cryptocurrency, as it leads to managed losses, which eventually results in higher profits in the long term. Let’s take a look at some risk management techniques that you can implement in your tool kit to become a better trader.

In order to implement proper risk management techniques, we first need to understand the different forms of risk that can exist when trading cryptocurrency, for example:

market crashMarket Risk – this is the risk that appears when you enter into an open position. There is the risk that if you open a long position, the market can move in a downward direction, which would result in you losing your trading amount.

Regulatory Risk – this is the risk that comes from the regulatory uncertainty that currently exists in the cryptocurrency market. For example, when China banned initial coin offerings (ICOs) in 2017, it triggered an immediate sell-off of in the wider cryptocurrency market. Other examples of this risk could be the cryptcurrency exchange that you trade on being banned in your country. Right now, there are certain trading services that are not available to US-based traders.

Liquidity Risk – this type of risk appears when it is hard for a trader to liquidate their earnings into fiat currencies (e.g. USD, EUR, GBP and more). In this instance, a trader would find it difficult to actually spend their returns in day-to-day life. 

Operational Risk – this type of risk is particularly relevant for cryptocurrency exchanges. For example, the exchange may make it difficult to actually withdraw your trading capital out of the exchange. 

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Now that we have a better idea of the types of risks that a trader could potentially face when trading cryptocurrency, we are then able to think of measures that we can adopt to mitigate these risks. For example:

Reducing Risk

Reducing Market Risk  – we will get into how we can manage market risk further into the article. However, the best starting point is to learn about how to protect yourself to mitigate losses that can occur when the market moves in the opposite direction to your trade. For example, setting stop losses is a very easy way to mitigate losses. 

Reducing Regulatory Risk – we can mitigate this type of risk by ensuring that our activities are compliant with the national regulatory laws of our country. We can also ensure that we stay up-to-date with the latest news to get an idea of the direction in which the cryptocurrency space is being regulated. If the government is not being too friendly with the cryptocurrency space, then it makes sense to stay out, until you get a clearer picture. 

Reducing Liquidity Risk – the best way to mitigate liquidity risk is to make sure that you are only dealing with cryptocurrency exchanges that are reliable, so that you will not have any difficulties getting your money out of the cryptocurrency market. Another way is to make sure that you do not have any amount of money in the cryptocurrency space in excess of what you need to conduct your activities. For example, if you are trading with $10,000 and you generate about $2,000 in profit, make sure that you take out that $2,000. This way, only the $10,000 is at risk, not $12,000. 

Reducing Operational Risk – operational risk can really only be mitigated by dealing with websites/companies that are reputable and have a track record of delivering good service for their customers. Therefore, reading online reviews is a good way of judging if a company/website can be trusted.

Risk Management Techniques

Implementing successful risk management techniques is all about preparation. That is why good traders live and trade by the saying: ‘plan the trade and trade the plan’. Let’s take a look at some techniques that you could be incorporating into your current trading plan.

Sure Weight Loss

Stop Losses and Take Profit Targets


Stop LossWe touched very briefly on this earlier in the article, but all traders should be incorporating stop losses into their trades. As well as this, traders should also be using take profit targets. To be a successful crypo trader, you need to be aware of the price that you are willing to exit your position if the trade doesn’t go your way (stop loss) and the price that you are willing to take profit if the trade does go your way (take profit target). Automated setups and signal groups (e.g. Binance signals) allow you to place your entry price, take profit target and stop loss before entering into the trade to mitigate trade risk. 

Traders that do not plan this beforehand will become susceptible to making emotional decisions when they do place a trade. Emotional trading should be avoided at all costs, as it will result in sub optimal decision making that can lead to big losses or smaller returns. Trading is a long game, so the goal should be to reliably and consistently generate returns. This isn’t possible with emotional trading.  

Position Sizing

The position sizing risk management technique suggests that you should never risk more than 1% of your trading account on any single trade. As mentioned before, trading is a long game, and this technique is intended to keep you in the game over the long term. If, for example, you go on a 20-trade losing streak, you will still have 80% of your initial trading balance. The other benefit to this technique is that if you do go into a losing streak, because you are fixed at 1%, you will be using a lower proportion of your initial trading balance with each trade (as you will be using 1% of a reducing trading balance). Conversely, if you go on a winning streak, you will be using a higher proportion of your trading balance (as you will be using 1% of a growing trading balance).

Risk/Reward Ratio

Another important risk management technique is being able to weigh up the risk to reward ratio of placing a trade. The idea behind risk to reward ratio is to determine the expected return of a trade compared with the expected risk of placing that trade.

The risk to reward formula is as follows:

(Target – entry)/(entry – stop loss)

You can also use the below as a rough guide for determining the risk to reward of a trade:

  • 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

The risk management techniques explored in this article are just a few strategies that you can be using with your trading. It’s important to carry on learning about other risk management techniques. Above all, take risk management seriously and you will begin to see more consistency in your trading.

Thank you for reading and sharing this article. Stay safe and healthy!

Author Bio:Guestpost
Elliot is a crypto-enthusiast that has been in the community for the past few years now. Elliot loves writing about trading and the technological developments in the crypto-space. When Elliot isn’t learning about crypto, you can find him reading a good book or on a run!

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IMPORTANT DISCLAIMER

Everything in this article is an opinion, not an advice of any kind. This material has been prepared for general informational purposes only and it is not intended to be relied upon as accounting, tax, investment, legal or other professional advice. Please consult with a professional for specific advice.

We do not endorse or guarantee the accuracy of the information and claims made.

All product and company names are trademarks™ or registered® trademarks of their respective holders. Use of them does not imply any affiliation with or endorsement by them.

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Crypto Roundup: All Your YouTube Influencers in One Place

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Crypto Roundup

Visit our Crypto Roundup section daily for a dose of all your favorite Crypto YouTube influencers in one place.    

Worried about missing updates from your favorite YouTube crypto influencers?  

Welcome to the Crypto Roundup.  

On this page, we will post a quick summary of the videos from some of the most popular YouTube crypto influencers.

Ivan on Tech  Altcoin Daily

Crypto Zombie Box Mining

Ellio Trades Lark Davis

Data Dash Bitboy Crypto

MMCrypto Chico Crypto

Altcoin Daily

Video title: Bitcoin Will Be OVER $20,000 By Christmas 2020! BIGGEST WEALTH SHIFT OF OUR LIFETIME! Cryptocurrency

Date: 19-Nov-20

  • World’s biggest wealth shift of our lifetime is happening right now and no mainstream media is talking about it, except CNBC.

  • Preston Pysh predicted on August 26th that: “Bitcoin should be reaching its all time high by Christmas.”

  • If you are looking to buy a dip, there may not be one.
  • Ricardo Salinas Pliego, a mexican billionaire, has just revealed that 10% of his liquid assets are into bitcoin.

Lark Davis

Video Title: STOCKS HIT NEW HIGHS! WILL COVID VACCINES LEAD TO MEGA PUMP IN 2021? [Are You Ready?]

Date: 19-Nov-2020

  • Stock markets and bitcoin pumps higher on the news of the second successful covid vaccine.
  • There could be more chances for the new stimulus. Means more inflation, more debt and simultaneously pumps stocks, gold and bitcoin.

Crypto Zombie

Video Title: BITCOIN $18.5k TOP!!?! DON’T BE FOOLED!! HODL FOMO BEGINS!!! $TRILLIONS FLOOD!!

Date: 18-Nov-2020

  • Overall sentiment of Bitcoin has changed drastically from ICO craze in 2017 to a time where people are FOMOing to own more bitcoin.

Ivan on tech 

Video Title: BIG WARNING TO ALL HODLERS!!!!!!!!! DO NOT GET REKT!!! BITCOIN $18,500 REJECTED – NOW WHAT?

Date: 18-Nov-2020

  • Ivan expects bitcoin to shoot past $20K resistance before end of this year, giving it 85% probability

Chico Crypto

Video Title: World’s Most Powerful Turn BULLISH on BITCOIN

Date: 19-Nov-2020

  • All those who hold big bags of Bitcoin will come out of the shadows to talk up the Bitcoin rally, a $20K bitcoin could be on the cards before the end of this year
  • Ethereum mining could act as a big catalyst for Ethereum’s price
  • Big companies like google could play a bigger role in mass adoption of crypto

Let the FOMO begin…

Thank you for reading and sharing this article. We appreciate you.

Stay safe and healthy!

Top 5 Cryptocurrencies 2020

IMPORTANT DISCLAIMER

Everything in this article is an opinion, not an advice of any kind. This material has been prepared for general informational purposes only and it is not intended to be relied upon as accounting, tax, investment, legal or other professional advice. Please consult with a professional for specific advice.

We do not endorse or guarantee the accuracy of the information and claims made.

All product and company names are trademarks™ or registered® trademarks of their respective holders. Use of them does not imply any affiliation with or endorsement by them.

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Lessons from the Veteran HODLERS to the Newbies!

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Lessons in Crypto

For all those who entered the crypto market after the 2017 bull run – here are few lessons from the HODLERS from the last bull run(s).

This is our attempt at making all you newbies aware of the mistakes veteran cryptoers did.

Let’s get started…

Don’t FOMO in to all the hype

FomoIt’s hard not to FOMO in crypto.  The trick is to make sure you don’t lose your shirt in crazy bets.  Always limit your bets to what you are comfortable losing.

The common ways you can become victim of FOMO are:

  • Following your favorite YouTuber without actually doing your own research on the project.
  • Investing into projects at the top.
  • Believing in promises of 100x or 1000x without any substance behind those claims.

HODLing far too long

Remember why you are into crypto – to make the money.

Never fall in love with your crypto, and HODL the tokens even when they are 10x and more.

Have a strategy to take your capital out before you become a HODLer.  

If you believe the project really has what it takes to go beyond 100x and more, just sell in instalments so as to not miss the ride.

One of the best ways to HODL is to take your capital in full and profit in tranches.

This rekt story will give you a right perspective of what it looks like, it’s one of many:

Don’t put all your eggs in one basket

Never go all in on one project. No matter how strong the project may look, even the projects with strong fundamentals don’t do well sometimes. 

And, you will be kicking yourself watching other projects go up and your portfolio just doesn’t seem to make a move.

And don’t over do it and have a portfolio with over 100 projects either. It is very difficult not to have invested in more than 15 projects but anything less than 20 is a good way to go, in our opinion. 

Put aside the share of Profits for Taxes.

One way you can get a good night’s sleep is by paying taxes. 

Always keep a habit of putting aside a % of your profits in USDT or other stable coins, as a reserve to take advantage of market volatility and also to meet your tax obligations. 

Exchanges are more evil during bull run

Foreign ExchangesDon’t trust exchanges. Yes we already know that, but they play more games during bullrun, some intentional and some technical. 

Many exchanges tend to go under maintenance when the prices shoot up too high too soon (Coinbase?), and you can’t sell. 

And the shady exchanges scam out before you know.

Regulators seem interested when the market cap of these projects goes through the roof, which then adds FUD around the project crashing the prices.  

Exchange may freeze funds pending investigations when such issues arise.

Take for example OKEx. Users are unable to withdraw their assets from the exchange for almost a month now, not certain if they ever will, and all that started with the legal dispute.

Never fall for Arbitrage gains

Arbitrage is when you buy in one exchange at a lower rate and sell on the other for a higher rate to take some profits. 

Some shady exchanges show a lot higher prices than the other genuine exchanges and when you deposit your assets to sell at those prices there won’t be actual volume to execute the trade. You may be stuck with either a high fee for withdrawal or other funky rules to take your own money out. 

Remember, there is no free Giveaway

Free CryptoScammers rise with the rising market.  

When the crypto market buzzes with all time highs – scammers cash in big time on newbies.

The most lucrative scam in crypto is ‘Free Giveaway’. Whether it be through YouYube ads or discussion groups and wherever they can get your attention.  Read this article on various sophisticated scams that are being deployed.

We hope these lessons help you through your trades and crypto life.  Stay safe and always DYOR.

Thank you for reading and sharing this article. We appreciate you.

Stay safe and healthy!

Top 5 Cryptocurrencies 2020

IMPORTANT DISCLAIMER

Everything in this article is an opinion, not an advice of any kind. This material has been prepared for general informational purposes only and it is not intended to be relied upon as accounting, tax, investment, legal or other professional advice. Please consult with a professional for specific advice.

We do not endorse or guarantee the accuracy of the information and claims made.

All product and company names are trademarks™ or registered® trademarks of their respective holders. Use of them does not imply any affiliation with or endorsement by them.

 

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Crypto Roundup: All Your YouTube Influencers in One Place

Published

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crypto news

Visit our Crypto Roundup section daily for a dose of all your favorite Crypto YouTube influencers in one place.    

Worried about missing updates from your favorite YouTube crypto influencers?  

Welcome to the Crypto Roundup.  

On this page, we will post a quick summary of the videos from some of the most popular YouTube crypto influencers.

Ivan on Tech  Altcoin Daily

Crypto Zombie Box Mining

Ellio Trades Lark Davis

Data Dash Bitboy Crypto

MMCrypto Chico Crypto

Altcoin Daily

Video title: The United States Just Brought Bitcoin into the National Conversation!! | Cryptocurrency in 2021

Date: 16-Nov-20

  • Former National Treasurer and the new US Senator Elected, Cynthia Lummis, said Bitcoin fits the bill as a good store of value as it is finite and limited, unlike the inflationary fiat currency.

  • Grayscale adds over 7000 more bitcoin in just the last 24 hours.
  • Just over 16% ETH staked for ETH 2.0 launch on Dec 2 2020.
  • Bitcoin Cash hard fork takes place tomorrow.

Crypto Zombie

Video Title: WARNING!!! BITCOIN 2017 BEAR FRACTAL RETURNS!!! BTC WORST CASE SCENARIO…

Date: 14-Nov-2020

  • Institutional money starts flowing into bitcoin.

  • Paypal goes live with its crypto trading platform for eligible customers. They have also raised the buying limits from the initially set $10,000 to $20,000 per week.
  • DIA, an DeFI Oracle provider, integrates with Polkadot.

Ivan on tech 

Video Title: BITCOIN WILL DO SOMETHING INSANE THIS WEEK!!!! -30% DUMP AHEAD vs $20,000 PARTY – Programmer

Date: 16-Nov-2020

  • Bitcoin could make a big move this week, either hit 20K or we may see a 20% to 30% drop
  • Chainlink partners with Etherisc to deliver agricultural insurance in Kenya.

Ellio Trades

Video Title: UNLOCKING $100 TRILLION? This low cap gem seeks to bridge CeFi and DeFi

Date: 15-Nov-2020

  • DeFI could be similar to the ICO craze in 2017
  • Low cap gem: AllianceBlock
  • AllianceBlock is bridging the gap between DeFi and CeFi
  • AllianceBlock Partnership with Orion Protocol and Chainlink.

Chico Crypto

Video Title: WARNING! An “EVIL” Entity Wants Control of BITCOIN…

Date: 15-Nov-2020

https://www.youtube.com/watch?v=45Ac-5y2ofg

  • 90% of Bitcoin’s mining pools are controlled by China based mining pools
  • As the value of bitcoin goes up – there is a threat of push to ‘control’ the network from China
  • Binance is looking to push through the 50% mining share and Chico believes this could be dangerous

Visit our Crypto Roundup section daily for a dose of all your favorite Crypto YouTube influencers in one place. 

Thank you for reading and sharing this article. We appreciate you.

Stay safe and healthy!

Top 5 Cryptocurrencies 2020

IMPORTANT DISCLAIMER

Everything in this article is an opinion, not an advice of any kind. This material has been prepared for general informational purposes only and it is not intended to be relied upon as accounting, tax, investment, legal or other professional advice. Please consult with a professional for specific advice.

We do not endorse or guarantee the accuracy of the information and claims made.

All product and company names are trademarks™ or registered® trademarks of their respective holders. Use of them does not imply any affiliation with or endorsement by them.

Continue Reading

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