Crypto Trading Tips: How to Manage Risk When Trading Cryptocurrencies

The author, known as Crypto Rand on Twitter, is a cryptocurrency trader, blockchain advisor and ICO researcher. He also loves to travel.

Risk management is one of the keys to success for every trader or investor. It becomes even more relevant with crypto due to the volatility and constant state of uncertainty. I would say that proper risk management will be responsible for at least 50% of your success.

There are no fixed rules however, because each scenario requires a setup. You have to build it according to your attitude, plans, mood, and targets. I will now share some of my strategies, which could prove helpful for your own operation.

One things that can burn all the profits of a trader is greed. When your coin is going up and up, it is hard to dump it. You check Twitter, and you see everybody is over the moon - news is streaming in, they say your pick is going to disrupt the industry, volume is increasing, and it seems unstoppable. But be clear about this: THERE IS A STOP! There will always be a correction, a crash, a BTC drop, FUD causing news, or exchange lags/errors/outages. So, if you are trading and not looking at the long term, you should sell on the way to the top, the when is going to depend on the fuel of the pump and your ambition. The sell point will depend on the stage of the coin (whether it's at the bottom or at ATH price discovery), the volume, the social network pulse, the whales’ reaction during the ride, and other factors.

Sell on the way to the top

But one thing is sure - you have to sell on the way up. DO NOT WAIT to sell all at the top because this is not going to happen. If you can’t follow the rally live, manage your sell orders in anticipation and put them in being mindful of past resistance levels, a little lower than previous resistance is good way to go. The percentage of the sell will depend on your intentions for the coins. By way of a tip, I can only tell you this: I never fully exit a coin. I always leave at least 10% of it to flow totally free as you never know how crazy things might get.

Diversification is crucial

Another key point about risk management is the diversification and size of your portfolio. This is a very long topic, but I will introduce some major points. The first and obvious one is to never go all in, no matter how awesome it looks, how promising the team say it is, or how much it is being shilled. It could be a trap or it could fail, not to mention a BTC rise/drop and FUD could come into play. NEVER go all in!

A secured portfolio should be spread across at least 10 coins, preferably more. The limit is the number you can control by yourself through proper tracking. As I commented before, I once had more than 130 coins, but that was a total mess. Even if you are going long for most of them, all of this needs some control. If you can’t exercise control on your bags, you will feel the negative consequences in your mood, confidence, and stress levels.

Of course, it will depend on how demanding you are of yourself. Another rule that I always follow is to not put more than 10% of my portfolio in the same coin. If it’s booming like crazy, I can let it reach 20%, but these are exceptional cases. So, if a coin is growing and growing, it is certain that the streak will end at some point, so it is best to sell on the way up and look for coins with better risk/reward. But always aim to keep a balance in order to reduce your exposure.

Split profits to stay ahead of the curve

As for what I advise on spreading the profits, here is a fixed rule I have: when taking profits from a trade, I'm currently applying the following distribution:

  • 30% to reinvest in alts
  • 25% to BTC moonbag
  • 25% to BTC buy-altsblood-bag
  • 20% to USD

The last two are really important because they will prepare you mentally and economically for hard times. It’s tempting to reinvest everything in alts, but smart money has to be always one step ahead, which means ready for everything.

Please note that nothing in this article is to be construed as financial advice. Neither the author nor the publication takes any responsibility for trading and/or investment decisions you make based on information provided herein or anywhere else on the site. Cryptocurrencies are highly volatile and you should never invest more than you can comfortably lose.