Whether it comes to trading or investing, the importance of risk management is underrated. A well-planned risk management strategy is necessary to ensure that you manage your funds appropriately. Several investors give less priority to this area and end up losing all of their money.
Risk management should begin from scratch in your investment journey. It varies from picking the right investment option to using the appropriate strategies to lower the risks.
Let us take a look at how can you manage your risk and strategies to aid you throughout the process.
Why should you have a risk management strategy in crypto?
Cryptocurrencies are known to many for their volatile nature. The technology, even though not brand new, is still fairly new to a majority of the world, including new investors. To add to that, the slumping prices and falling projects can make investing seem worse.
Well-laid-out risk management also helps you minimize the possible hazards and helps you become successful throughout jour journey. To make it easier, there are a few strategies that can help you with managing your portfolio’s risk. Let us take a deeper look at these strategies.
The 1% rule
This risk management strategy helps to minimize the maximum risk. The “1% rule” mainly means that you don’t risk more than 1% of your overall capital. If your overall capital is $100,000, you should not risk more than $1,000 on a single trade. This helps to ensure that you don’t blow up your trading account by putting all your money on the line at once.
Many traders fail to place a stop-loss, but it is one of the most important steps. The stop-loss is usually set for a certain price below your buy price. In case of a slump and a drop in asset value, once your stop-loss price hits its target, the order will be executed.
This is useful for people who are not ready to stare at the charts 24/7. If the market proves to be extremely volatile, the stop-loss will be triggered; you can get out of the trade with just a minimal loss. This is another possible way of minimizing the risk of losing all your money.
Do your own research (DYOR)
“DYOR” is so underrated and should be followed by everyone. Whether you are a small investor or trader, research is very important. DYOR is important before you invest money in any project, token, or coin. The possibility of it ending up as a scam within the cryptocurrency realm is also not minimal.
Some of the key things to focus on include the team behind the project, the whitepaper, tokenomics, collaborations, social media channels, and the vision of the project. It is always better to stay away from projects that lose true potential. DYOR can also help you from falling prey to scams and can save your funds for a safer trade.