Best Risk Management Strategies For Cryptocurrency Leverage Traders

  • A detailed trade plan will have a proper entry and exit point, and a clear risk management strategy to thwart significant impacts on the trade position.
  • As the cryptocurrency trading market is volatile, it is always necessary to perform technical analysis and set up Take Profit (TP) and Stop Loss (SL) value before executing it.
  • Stop Loss is a type of trading command set in advance to buy or sell an asset when the current price reaches a specific pre-fixed value before executing it.

In this world, the biggest risk is not taking one. It suits well for life and also for trading. If you are looking for a profit opportunity, there is no better way than performing risky trade with proper risk management strategy. We all would have heard that trading in the market involves many risks, and it is true too. But, the risk of trading cryptocurrency with leverage is a lot riskier than spot trading. If you have a proper strategy, you can guard against severe losses and increase the profit potential on each trade executed.

As the crypto market is highly volatile, leverage trading requires a more calculative approach. At times, even experienced traders tend to lose their trade. So, if you are a novice crypto leverage trader, it is essential to understand the following strategies that can be used to protect your trading profits.

Strategically Plan Your Trades

Leverage trading plan is a roadmap on how to conduct a trade systematically and efficiently by considering all the variables which would impact your investment and its objectives. A well-researched plan will help you reduce the trade-risk and set-forth the strategy to conduct the trade from start to finish. A detailed trade plan will have a proper entry and exit point, and a clear risk management strategy to thwart significant impacts on the trade position.

Commonly, the actual market may go against your plan, so while planning, you should make room for improvisation that would help you to accommodate yourself to the market. If the trade goes against your plan, scrap the trade, and plan the next trade. Don’t enter into any trade without proper planning; it may cost you heavy on your pocket.

Set up Take Profit and Stop Loss 

As the cryptocurrency trading market is volatile, it is always necessary to perform technical analysis and set up Take Profit (TP) and Stop Loss (SL) value before executing it. The TP/SL is an exit strategy to sell your trading position either for taking profit before market consolidation or for limiting the losses before they escalate. Let’s understand the concept of Take Profit and Stop Loss by definition:

What is a Take Profit?

Take profit is a type of trading order set in advance to buy or sell an asset, or an instrument automatically when the price moves upward with a certain level of profit. It is executed when the current market value reaches the Take profit value. This mechanism will help you to limit the risk and exit the market at a favorable price as soon as possible.

What is Stop Loss?

Stop Loss is a type of trading command set in advance to buy or sell an asset when the current price reaches a specific pre-fixed value before executing it. This is the exact opposite of Take Profit order. This mechanism will help the investors to limit an investor’s losses on a specific trading position when price moves against the objective of your investment.

Using the Risk/Reward Ratio:

The risk/reward ratio is an objective way for investors to compare the trade returns concerning the risk undertaken to earn them. This method is carried out to understand and plan the type of trade to take by clearly figuring the kind of risk involved to perform a trade on an asset or instrument. It is like figuring out an expected profit with capital risk, which is undertaken.

Manage Crypto Trade Volatility With Proper Strategies.

In general, more than 1:3 is a good risk-reward, i.e., an investment of 1 USD to get a profit of 3 USD, or more than that is considered to be a good risk/reward.

Diversification of Trading Portfolio:

You must have heard people saying, “Never put all your eggs in one basket.” It is so true in the crypto trading world. Investing everything you have on a single trade can be a good idea to earn a significant profit, but it may also result in a significant loss. So always make sure you diversify your investment portfolio with several other financial instruments. It doesn’t guarantee zero-risk or high profit, for long-term trading strategy, this will be the key to limit the investment risk exponentially.

Follow One-Percent Rule:

This is a trading thumb-rule, which is followed widely by many cryptocurrency leverage traders across the world. Never use more than 1% of your trading capital into a single trade. If you still feel like risking more, it should be capped at 2% per trade, not more than that. If you still pursue to invest more, then you are risking substantial money on your trade. It should always be part of your risk management plan.

And, another important thing, FOMO – the Fear Of Missing Out. It is a common term used in the crypto trading circle. Many crypto traders or noobs sometimes act on emotions or what they hear around without any proper plan, which most likely to end badly with heavy losses to bear more than one can afford.

Conclusion:

When you are entering a crypto trading with leverage, make sure you begin planning to proceed with the clarity it requires. Do proper checks on the market performance, technical analysis, fundamental analysis, and objective-based risk management strategy. The most important of them all is at Trade Herald; you can execute every trade by a clear trading strategy with different order types, which can help you execute upto 100x leverage trade with zero trading fees. You can perform trades 24×7 with zero downtime, i.e., you can execute a trade instantaneously without any lag. Our advanced crypto margin trade exchange has more than 100 trade instruments to diversify your trade portfolio. Start trading cryptos with risk-free trade exchange now.

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aaradhya krish

I am a Marketing and Business Strategist, avid reader and a passionate writer. I write about the latest technologies, startups, outsourcing and current web & mobile development trends.

One thought to “Best Risk Management Strategies For Cryptocurrency Leverage Traders”

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