What is risk management and why do we talk about it so much?

Trading by it’s very nature is high risk and especially the crypto market, can be very volatile. Signals provided are done through careful analysis however, a quick way to lose money is to have no or poor risk management.

So what is risk management?  Risk management is how you protect yourself and your portfolio from heavy losses and essentially losing all of your money. It is an essential part of trading and is often underestimated.

Risk Management Strategies

Plan your trades. One of the biggest battles for a trader is the fear of missing out and jumping into a trade expecting it to keep going up (or down) only to find that it is at the top and it reverses. Planning your trades takes the emotional element out of the trade and forces analysis to take place which is essential.

Always set a stop loss. No one likes losing money and being in a trade that goes negative can be tough but it is always better to lose a little so you can live to trade another day, than stay in a losing trade hoping for it to reverse, only for it to keep dropping. Being in a profitable trade doesn’;t make setting a stop loss any less important! Moving your stop loss to entry is just as important to protecting your portfolio and preserving your profit!

Don’t forget to Take Profit. We all want to buy the absolute bottom and sell at the absolute top but that is very hard and is rare. As much as we can plan, we can analyse, the market has a mind of it’s own and sometimes things don’t go the way we expect. When you are in profit, taking profit regularly is integral to how you manage risk. Instead of waiting for the absolute top, take profit regularly so if things reverse, you already realised profit and with stop loss moved to entry, your trade can become risk free.

The 1% rule. Often unsuccessful traders have a position that is far far too big and represents a large portion of their portfolio. What this does, is increases the risk so when the trade doesn’t work out, the amount of lost is a substantial portion of your portfolio and then you have less to trade with after. It is far better to trade with a very small portion of your portfolio. If things go wrong, then you have limited the amount you can lose and therefore, it is not detrimental to your overall portfolio. Trading is not a get rich scheme! A successful trader builds and increases their portfolio over time and many successful trades.

Following Signals. Our signals have done all of the hard work for you! Careful analysis has taken place and all of the entries, take profit levels and stop loss has been set. The amount of leverage and the entry points have all been carefully thought through. Can you change the entry or increase the leverage or use a larger position than is recommended? Of course you can but the amount of risk you will be carrying will be far far too high and while you may be successful in a short term, you are far more likely to lose money that you cannot afford to lose and end up in a position where you are unable to trade. Our goal is for you to not only increase your portfolio but to become a successful trader for the long term.

Margin. There are pros and cons to isolated and cross margin but as a rule, we recommend isolated margin. Isolated margin limits the risk to your position and no more. Cross margin means you can go above 100% negative but all of your portfolio is exposed to the risk. While that doesn’t seem that there are positives for using cross margin, there are but it is not recommended to be used by anyone who is not an experienced and seasoned trader and by default, we recommend (and post signals using) isolated margin.

Risk/Reward Ratio. The risk/reward ratio marks the prospective reward a trader can earn for every dollar they risk on an investment. Consider the following example: an investment with a risk-reward ratio of 1:3 suggests that an investor is willing to risk $1, for the prospect of earning $3. This ensures that the potential losses are minimised.

It also means that your portfolio still increases even if you have one successful trade and one unsuccessful trade (You have $3 profit from one trade and $1 loss from the other leaving you a net $2).

Accept your losses. Every trader experiences losses and while no one likes or wants them, they are to be expected. What is important is that the losses are minimised and the ratio of winning trades to losses is very much in favour of the wins.

Cornix and Trade Automation. Not only does Cornix and trade automation software help to open trades when you are asleep or busy with life, it also ensures you follow the signals as set. It also helps you to not worry about your trades. With every trade, you should be ok that it may hit stop loss. It’s not healthy to agonise over every candle and every price increase or decrease.