The recent massive crash in the crypto-world have wreck havoc yet again! Have you considered these risk management strategies ?
1. Develop a strategy for a falling market
Always be prepared and expect the worst.
Not everyday you make the right choices nor the right decisions on your trades. By realizing this fact, you train yourself to be mindful of every consequences - good or bad, better or worst. More so that by accepting this (that the market will eventually experience a crash) , realistically, you will have the proper mindset of planning for your emergency strategy. Can you afford over 10% or 20% drop? Do you exit on a loss? or do you have a recovery plan? These questions should be part of your risk management, and if you do well on this aspect, you place yourself in a very comfortable situation even during the worst scenario of a market crash.
Some strategies you might want to consider:
- Cut your losses early
- Infuse more capital to buy the dips and gain from the expected bounce
- Martingale Trading Strategy - doubling your investment every time you are on a loosing trade.
Again, complacency is the mother of all F*ck ups! so make them strategies. Now!
2. Don't be greedy
Over-confidence kills.
Or in trading terms can ruin your overall state of mind. People who venture in trading crypto-currencies without setting a goal tends to be greedy especially if at the beginning they experience huge profits.
1.Yey! I made $1000 in a day! This is profitable, i'll hold this awesome coin for life!
2.(the next day coin x doubles again) OMG! i can make a million out of this coin. hold hold hold.
3.(the following day the coin dropped significantly!) Nah, this coin will recover....
4.(the coin never recovers and you are back to starting average buy price.) *sigh
Always remember you only profit when you complete a trade
a completed trade is when you buy asset x at price y and eventually sell at price z
Most traders would count the eggs before they hatch not keeping in mind that this is unrealized profit until it is sold. Most of the time greed is to be blamed here, multiplied by the absence of goals.
3. Diversify your portfolio
Not all coins are made equal.
Although the recent crypto-crash caused most (if not all) the coins to dip (in value vs the USD), the loss is not uniform across them all. Some recovered faster than the others and some have been stable than a few. Diversifying your portfolio in anticipation of the market crash meant that you allocate more funds on the stable ones (lower risk) and infuse more funds during a market crash on the coin which you know will recover faster (high returns or fast portfolio recovery).
Disclaimer
Trade at your own risk. The above analysis is my own view and I take no responsibility of your trading behavior. It is best to do your own research and analysis. Take my points lightly :)
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