Risk Management Techniques For Cryptocurrency Traders

If you are into trading cryptocurrencies and want to make the most of it, you will have to learn the art of risk management. That said, risk management is the most vital element required for trading successfully. Even if you have the best trade set up, trading guarantees nothing. Though, no denying the fact that every trader will experience a hit while trading at some point in time, risk management will help them avoid greater risks.

If you can manage risk effectively while trading, you will be in the trading industry for the long haul, specifically when it comes to trading bitcoins. Eager to know more about cryptocurrency trading? Visit hometownstation.com. If you are looking to avoid major risks when trading cryptocurrencies, we have got you covered. Below we list a few tips that will help you reduce risk exposure when it comes to trading bitcoins.

Trade Quality Over Quantity


There are a lot of traders who overtrade the market. These types of traders are usually found to waste a lot of money and time. If you don’t want to be one of them, we recommend trading quality cryptos over more numbers. The key to obtaining greater benefits is by trading quality always, over quantity. You should keep in mind that all kinds of market conditions will not be conducive to the strategies formulated.

For instance, during strong trends, swing trading works the best. On the contrary, when the market is stable, automated scalping is believed to work more effectively. That said, before dwelling your feet into quality trade, you need to first determine the type of trading style that will work best for you. Furthermore, you will also be able to identify the correct market conditions.

Stay Protected From Counterparty Risk

No denying cryptocurrencies enjoy some of the highest gains in terms of percentage, over other similar investments, but they have some flaws too. Furthermore, the exchange of cryptos also attracts a certain degree of counterparty risks. As a trader, you should be aware of the fact that trading cryptocurrency is not easy, and in fact, is one of the toughest. The transactions once done are irreversible.

Having said that, if you are trusting an exchange with the private keys, the thought can be disastrous at times. There have been a lot of rumors and news stating that the crypto exchanges were hacked and many lost money. When trading crypto, one cannot eliminate the counterparty risks, but they can be reduced to a great extent.

  • Choose to trade only a part of the portfolio. That said, an ideal percentage would be 20-30%.
  • The coins should not be left on the exchange if you are not actively involved in trading.
  • Carry out intensive research about the exchange to make sure that it enjoys a great reputation in the market.
  • The coins can be diversified among several exchanges to have a unique portfolio.

All of these tips will help you reduce counterparty risks to a great extent and you can turn the tables towards a positive side.

Stay Away From Using Excessive Leverage


Margins are often leveraged by the traders since it impacts the size of an order and also the flexibility of going short and long gets enabled. Having said that, if a trader is using too much leverage, the trades will not get the required space and flexibility. Also, at times the whole principal amount may be lost because of forced liquidation.

Some of the exchanges out there in the market offer leverage that is as high as x100 but a minor move of even 1% can destroy your account. The wisest approach here will be the use of x3. This way you will get a chance of increasing your gains, and at the same time, the trader will get to enjoy a buffer zone to exit a bad trade.

This rule has an exception too, which would be to scalp smaller time frames when the market is volatile. The longer a trade is held, the less use of leverage will be.

An Exit Strategy Is Required

You should be prepared with the key support and also identify the resistance levels on your trade chart. Furthermore, we recommend you plan out your trade way before time. You should also calculate the ratio of risks to rewards. In addition to it, the traders are recommended to set their profit-making targets. This will help them obtain the maximum benefits from their investments.

Traders will have two options. They can either add to their position in the market when the market has strong trends or the profits can be locked too.

Avoid The Hype

Traders have a few enemies and the worst are the fear of losses or the fear of missing out. When trading in crypto you should not have both. That said, a trader can become too greedy and as a result, they buy too many tops. The selling of cryptos should not be panicked, or else the position of a trader may be cashed out at the dump’s bottom.

As a trader when you learn to manage your emotions and are objective, you conquer only half of the battle. It usually happens that at the peak of the hype the market reaches its distribution phase and along with it a downtrend ensues.

Have A Diversified Portfolio


The risk factors with cryptocurrencies can be reduced greatly by diversifying the crypto portfolio. That said, when you invest in different cryptos instead of investing in just one kind, the risk of losing reduces. The price of one crypto may decrease but for the other, it may increase, thereby balancing the overall figures. When the investment is made among different coins, the volatility impact gets combatted greatly. A few coins in the crypto market are highly fluctuating, whereas others are not.


Cryptocurrency investing has its pros and cons, and you should consider all of them before you choose to invest in it. We recommend you choose wisely. When starting, take expert advice to make sure you don’t get a big hit. The market is highly uncertain and volatile, hence you should be mindful at all points.

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