It is not wrong to say that many investors and traders have liquidated their funds in crypto trading due to a lack of proper risk management knowledge. As a trader, aiming for profit should not be your focus; what should be your major focus is risk management and how to secure your funds from liquidating.
Taking advantage of good technical analysis will help you achieve this. In technical analysis, risk management is one of the vital things you are taught, because if you know everything but lack proper orientation on risk management strategies, everything you know is futile.
As a trader, how do you manage risk since this is a vital part of trading?
Risk management.
In my last post on forex and crypto risk management strategy, I explained that risk management is simply the ability to protect your fund from liquidating. As a trader, you understand that the market is consistently volatile, and might frequently walk against you at some point. Your saving grace is how to manage the risk of falling victim to market volatility. Knowing the parameters of risk management is the key.
How to manage risk.
In trading, there are two phases of trading: spot trading and future trading. These types of trading have their own trading strategies and approaches, as well as their own risk management approaches, which can protect you from liquidity.
- Never trade more than 1.5% stop loss and a maximum of 5% take profit on future trades.
Many traders are very greedy as far as trading is concerned; they only want to milk the market and take excessive profits that always go against their setups. In future trading, there are parameters to follow in order to save your fund from liquidating because future trading is not long-term trading like spot trading. These parameters are for beginners and for those who don't have adequate funds in their wallet to trade high leverage. How do you manage risk in future trading? Never trade more than 1.5% in the stop loss and 5% take profit at maximum. Which will help you manage your liquidity.
- Never trade more than 5% stop loss and a maximum of 20% take profit in spot trading.
Spot trading is just like investment trading, which has so much to do with long-term investment. This kind of trading and investment do not need any trading leverage; all they do is trade with their capital. This kind of trading can be done long-term based on the traders preferences, but the risk of liquidity here is not as volatile as in future trading. How do you manage risk around trading spots? The major ways to manage your risk revolve primarily around your stop-loss and take-profit. Your stop loss should be 5%, while your take profit should be a maximum of 20%. Hence, having a 5% stop loss will give you just a 5% loss against total liquidity, which is a reasonable loss. Doing this will help you.
- Stop loss should be slightly below the order block.
Stop is actually necessary while trading because it helps you move out of the market when you are not monitoring it. It also prevents you from being unaware of liquidity. Therefore, to set your stop loss, you should have made your stop loss a bit or slightly below your order block. The reason why you need it to be below the order block is that when the market moves below your order, it can still pick up even if it has not mitigated your order. The image below will give you a clue on this.
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