Risk management is the foundation of successful trading in any market, especially in volatile crypto. Without it, you are gambling, not trading.
The Hard Truth
90% of traders lose 90% of their money in the first 90 days. The reason isn't bad strategy—it's bad risk management.
Position Sizing: The 1% Rule
The most critical rule: Never risk more than 1% of your total account on a single trade.
This does NOT mean you only use 1% of your capital to buy. It means if your stop loss is hit, you lose 1% of your TOTAL account balance.
Formula
Example:
- Account: $10,000
- Risk Amount: $100 (1%)
- Stop Loss Distance: 5% (Price is $100, Stop is $95)
- Position Size: ($10,000 × 0.01) ÷ 0.05 = $2,000
Stop Losses
A stop loss is an exit plan. You decide BEFORE you enter where you will be wrong.
Placed below support or above resistance.
Based on ATR (Average True Range). Adapts to market noise.
Exit if price doesn't move within a set timeframe.
Risk to Reward Ratio (R:R)
Always aim for a minimum of 1:2 R:R. For every $1 you risk, you should potential make $2. This allows you to be profitable even with a sub-50% win rate.
Psychology and Discipline
- Hesitating on valid entries
- Closing winners too early
- Fix: Trust your pre-planned system.
- Oversizing positions
- Removing stop losses
- Fix: Respect your rules above profits.
Conclusion
Trading is a marathon, not a sprint. The goal is to survive long enough to capitalize on the big moves. By protecting your downside, the upside takes care of itself.