Risk Management in a Volatile Crypto Market ─ How to Protect Your Investments

Source: finance-monthly.com

A lot of us have been telling everyone for years now that the crypto market is a rather volatile one. You need to be experienced and gutsy to navigate it and come on top of it every huge spike, up or down. This is why the crypto market isn’t for everyone and this is why just those that can and dare, earn big.

When you find yourself in an unstable environment like the crypto market, you need some sort of strategies and management skills to come on top of every investment. You need to know more than basic things and you need to know how to implement that knowledge into real-life market fluctuations.

Now that we familiarized you with something you probably overheard before, we need to tell you that you don’t need to be afraid of this market. This isn’t an article that will tell you to stay out of the crypto market because of its volatility, we are saying that you need to get in it but you need to know how to protect yourself. This is where bitcoin-profitapp.com and our article here come together because one will help you jump into trading while the other will aid you in learning how to make that trading pay off.

Risk management isn’t something new, and experienced traders used this for years. It needed to be a bit adjusted for the crypto market but it is very successful and you can see that from the investment whales on the market that are rolling in crypto coins. Without further ado, let’s dive into the tips about risk management!

1. Predetermine Your Risk Tolerance for These Assets

Source: bitcoinke.io

The rule of thumb here, and in any type of investing is that you should never take on more than you can afford to lose. The level of risk a trader is willing to tolerate will vary from trader to trader. Not all of us can afford the same level of losses which is the reason we all set our boundaries differently.

Whatever your level or risk tolerance is you should set it and according to that you should adapt your crypto investments in line with it. you can use this in 2 different ways – evaluate the risk-to-reward ratio before investing in your preferred crypto asset, while the second way is to establish how much money you are willing to risk at any given time and don’t go over that.

2. Take-Profit and Stop-Loss Orders

Every experienced trader is swearing in these orders and strategies when it comes to risk management. Trading in the crypto market asks for a lot of restraint and self-control, especially when the market is on the rise and when you are inclined to invest more than you have or more than you have planned.

This is where certain things, like take-profit and a stop-loss order, come into place. A stop-loss order establishes a specific asset price at which the trade will be closed. It is usually placed below the usual price and when you do set it, it will greatly help in the prevention of any future losses.

Take profit order, on the other hand, establishes a price at which you want to close your position and lock in a particular profit. These two orders are just two different approaches to controlling your risk in the crypto market. The best thing about these is that you can prepare them in advance and carry them out automatically.

3. Diversification

Source: paybito.com

No matter what type of investor you are, the general rule of those successful is that you should never put all of your eggs in one basket. This means you should never stake your entire financial future in just one crypto asset.

The best course of action here is that you should think of your crypto assets as just one type of investment among many others that can boost your financial position. With that in mind work on creating a risk diverse portfolio that can never be doomed to fail.

4. Hedging

Now you probably heard of this once or twice, especially if you are in an investment business. What hedging allows you to do is protect your assets if you are uncertain about their future path. It involves making a primary trade in the direction you believe that the market will go and making a secondary trade in the opposite direction.

No matter what happens to the asses, rise or fall, doing this – hedging, will prevent you from suffering a loss. You can either go long or short with hedging meaning you are pledging to buy a crypto asset at today’s value at a fixed point in the future because you expect that its value will increase.

Going short, on the other hand, is a technique where you commit to selling a coin at its current price at a predetermined point in the future if you believe that its value will decrease.

5. Exit Strategy

Source: economictimes.indiatimes.com

Whatever happens on the market and however you plan and protect your investments, you should always have an exit strategy. Planning and emergency exit strategy is the core of all successful trades, even though you might not want to consider this situation at all. You need to know how to tell when it is time to switch to another crypto asset or stop trading altogether.

If you decide on an entry point for a certain crypto asset you should also decide on the complete opposite and stick to it. this is often referred to as the exit amount it is there to serve as a concrete benchmark that should prevent catastrophic failures. What you also shouldn’t do is have an exit strategy stop you from trying your hardest to trade crypto assets and make your money this way.

So, as you can see trading crypto isn’t that hard. It is the same deal as any other asset on any other market with a bit more movements and volatility. This is mitigated by having good risk management options prepared and by having a strong character that knows when to stop and when enough is enough.

Trade smart not on a whim and always, always, have some sort of protection for your financial future in place.