Having a sound risk management in place and following it is really one of those make or break aspects in crypto trading. It is probably the single most important aspect in trading, and I haven’t seen even one trader to sustainably make profits in trading without risk management.
As the name already suggests, risk management is about managing your risk exposure, knowing when to add or stop adding risk, and the major goal of it is capital preservation! You can make thousands or millions of dollars over many trades, but if you don’t manage your risk, you may lose it all over just one trade. What helped me is to think of risk management as the guard rails in which I can move, and under no circumstances I am allowed to cross those guard rails as I will likely crash.
This article is Part 1, the introduction of our Trading Academy series on Risk Management in Crypto Trading. See below the risk management framework developed by us, which we will use use as guide to walk you through the different aspects of risk management in crypto trading:
Risk management framework hoc-trade
As you may notice, our risk management framework is build as a pyramid, which means two things:
1. The aspects listed at the bottom, the widest part of the pyramid, are the most important ones
2. The bottom of the pyramid is the foundation of the whole structure! The next layer on top would collapse if the layer below is not rock solid!
Consequently, we will work our way up from the foundation of risk management, the risk per trade, towards the guardrails in crypto risk management, such as risk of open positions & risk per day. Next, we will cover the strategic aspects of risk management, such as identifying your own trading weaknesses or using risk management for the very powerful strategy of scaling in and out of trades. Lastly, risk management is not a one-time thing, it is always evolving depending on additional experiences gained, changes in risk appetites, changes in trading strategy or market environments.
Risk management interlinks with many other trading aspects, such as position sizing, money management, and emotions control. Those points will be touched upon in this risk management series, however will get dedicated articles due to their importance as well.
We will release our Risk Management series step-by-step! So if you are interested, please give us a follow and get notified as soon as the next article is uploaded.
If you would like to leverage AI for Risk Management in Trading, please also see our recent article on this here.
Thank you for reading and stay tuned for the next update!
Please note that none of the above should be considered financial advice! Please always do your own research!
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