Knowledge of the principles of risk management is one of the main skills of a trader.
Trading is not only understanding the market movement, candles and indicators, but also a deliberate strategy of risk management, which is the proper choice of instruments, allocation of capital, the calculation of entry points into the market and fix the profit.
The basic rule of risk management as in any other business is unchanged, you should always invest only surplus funds. Otherwise there is a high risk of being in a difficult life situation.
There are several main principles that must be followed in trading. Otherwise, a high probability to lose your Deposit after three or four transactions.
In a series of transactions need to lay up to 70% Deposit
The remaining 30% should be kept in reserve in case of unforeseen circumstances. The fact that trading will not work to get 100% profitable trades. The market can go either way: you can happen a strong pulse movement, change of direction of the graph. Technical analysis and indicators, as a rule, give an accurate forecast, but you should not rely on them exclusively.
Entering a trade in the ratio of possible profits and losses 3:1
The main task of every trader is to profit from the transaction. As the market of cryptographic currencies are very dynamic, risk Deposit at a smaller ratio should not be. For example, if the price of Bitcoin is now $7, 000, then you put the stop loss at $6 800, while you have fixed a profit at around $7 600. If the market goes down, then you leave $200 in the negative, but that’s not a dangerous situation.
Not more than 4% of the Deposit per trade
Even if there is a clear forecast of the market, we cannot be sure that it will behave exactly as they say the shadows of the candles or indicators. A small part of the Deposit on a single trade can protect against unexpected situation, and will not prevent the trader follow their strategy.
The limit of loss should not be more than 5% of the Deposit
Many traders do not follow this principle and often make unsuccessful trades. For example, if you Deposit $10 000 you buy Bitcoin at $7 000 then the limit should be put at $6 500.
We are talking about the main part of the Deposit, that is, those 70% of which was mentioned in the first paragraph. A reserve Deposit is always needed in order to in the case of sharp falling of the prices for a certain coin was the opportunity to enter the market at the bottom and get the big profit, using the remaining funds.
Risk management is quite simple. Of course, there are other principles, but in trading can be limited to four. The only thing you need to remember is to always follow them regardless of the situation on the market.