Investing and Trading in Cryptocurrency
Risk Management Strategies
Risk management is essential in the volatile cryptocurrency market. By using strategies to minimize losses and protect your portfolio, you can maintain a balanced approach and reduce emotional decision-making. Here are several key strategies for managing risk.
1. Stop-Loss Orders
A stop-loss automatically sells your asset if price hits a preset level, helping cap downside. Pick levels based on your thesis/invalidation, not arbitrary percentages.
Example: Long BTC at $30,000 with a stop at $28,000 risks ~$2,000 per coin.
2. Position Sizing
Allocate only a small fraction of capital per idea so one loss doesn’t derail the portfolio. The common 1–2% rule limits per-trade risk to 1–2% of total equity.
3. Diversification
Spread exposure across uncorrelated assets (majors, L2s, DeFi, stablecoins). Gains in one sleeve can offset drawdowns in another, smoothing equity curves.
4. Hedging
Use offsets (e.g., futures shorts, options, or rotating into stablecoins) to reduce net market exposure during periods of elevated risk or event uncertainty.
5. Rebalancing
Periodically restore target weights (e.g., 50% BTC / 50% ETH). Trim winners and add to laggards to keep risk aligned with your plan.
Summary
Combine stop-losses, position sizing, diversification, hedging, and rebalancing to protect capital and make more consistent decisions through crypto’s volatility.
What's Next
Next course: Understanding DeFi—how protocols, liquidity pools, lending, and yield mechanisms work, plus risks to watch.
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