For a beginner

Key rules of risk management

Key rules of risk management

Contents of this article:

You will be faced with drastic market changes when trading on the stock exchange. You won’t be able to manage trends that affect the rate of the crypt, but you can manage your investment portfolios and emotions. There are risk management rules that help to build effective trading tactics and not lose the deposit in case of an unsuccessful transaction.

What is risk management in stock trading

Risk management rules are the trader’s actions to save capital, they will help secure the deposit and earn on cryptocurrency with minimal losses. The basic rules of risk management are relevant for all financial markets, including cryptocurrency, which is the most volatile.

The main rules of risk management are:

  • Moderate risk. A trader with a competent strategy loses a maximum of 2% of the deposit on one transaction, it is even better to stick to losses up to 1%, and then losses will not become a serious problem for you.
  • The ratio of profit to risks. Think in advance whether the inherent risks are worth the profit from the transaction. If the operation involves high risks, it is better to refuse it. Even experienced traders sometimes make blunders.
  • Strict following the strategy. Once you have a plan of action, stick to it. If the chosen strategy does not work for a week or more, take a break and reconsider tactics.
  • A diary. Keep a trader’s diary to track your own dynamics in the market, and work on your mistakes effectively.
  • Stop losses. Stop losses are pre-set software limits in trading that will automatically close a position in case of unfavorable price dynamics.

What risks do traders face

There are several risks based on the basic rules of risk management that threaten even an experienced trader. The main ones are:

  • No spending plan. You need to spend at least six months on average to go from a beginner to a successful and confident trader. It is worth planning expenses for this period in such a way as to trade on the stock exchange comfortably, without reducing the standard of living for the sake of investments and transactions.
  • Inability to stop in time. One of the basic rules of risk management is the ability to take a break in a timely manner. As a rule, serious losses of the deposit are preceded by a series of unsuccessful transactions. You should not be led by the desire to recoup, if you have made 5 unsuccessful deals in a row, stop and reconsider your tactics.
  • Desire to recoup losses with one trade. A trader can take a risky trade in order to compensate for losses from several unsuccessful transactions at once guided by emotions, rather than cold calculation. Such a decision leads to even greater losses according to the rules of the risk management system.
  • Lack of an allowable loss plan. Think in advance what percentage of the deposit you can afford to lose in one transaction, trading day, week and month. Do not exceed the allowable percentage, otherwise it will negatively affect your deposit and lead to a stressful situation in which it is difficult to make the right decision.
  • Choose deals that you cannot afford. Trade for the amount that you can only lose safely. Use one of the rules of risk management – increase risks only as you gain experience and increase the deposit. So you will trade comfortably, and in case of failure, avoid the temptation to recoup.

How to build a risk management system

A properly built risk management strategy is the art by which traders manage risk, preserving and increasing capital. The rules of effective risk management allow you to make profitable decisions in stressful situations. How to secure a deposit for a beginner? Learn and develop in the crypto-currency field.

The Crypto Crew team will tell you more about the current risk management rules in cryptocurrency trading and help you to build a successful trading strategy. You will learn how to use analytical data, learn all about the psychological tricks in the crypto market and enter the exchange with a ready-made strategy by becoming a member of our community.