Risk Management Guide - by dot

Intro

 

A main problem in the cryptocurrency market is the uncertainty, every single trader who have already had random painful losses from the crypto market already has some experience with the huge problem the uncertainty creates, one moment you’re up high in the sky, and the second one will get you crying on the floor.

In order to prevent ourselves from becoming absolutely mental and poor, we must have a prepared system to save our asses.

 

A trader who can not control his own funds and his own risk management, can not be called a trader, but instead will be called a gambler- because he gambles randomly on a coin (mostly he doesn't even care about the project or the uses of the coin either). 

If he wins (which happens a lot in the bull market phase)- he thinks he is the king of the world and if he fails, he tries again and eventually loses a lot of money and important funds he eventually should have used in order to create more money, hence : reducing your POWER.

 

Infact, a trader who doesn't prepare to lose, will NEVER be profitable in the long run, because the downside movement in percentages is more violent downwards mathematically, then it is upwards.

If a trader wouldn't know how to cut losses in time, he will get into a tilt, do wrong actions and this can eventually lead to him losing all his funds or most of it.

 

A trader who is in a tilt or a continuous phase of losses should be kept away from trading IMMEDIATELY or else he can basically commit suicide financially and be left without a single dollar. 

this happened to me as a young trader (a dumb kid) and very fast I have learned my lessons, infact, this happened to every successful trader, it is just that only few of them admit, and the rest are cocky assholes. Nobody succeeds without exploding an account as a day 1 beginner in the crypto market if nobody gave him directions or instructions. 

 

It is important that you will learn them as well, because only that way you can recover and free yourself towards financial freedom.


There is a very big and successful analyst in the crypto world that I love and learned very much from, his name is Philakone, his instagram bio is “Forget the mistakes, Learn the lessons”. This sentence is so true. 

I don't care if you lost 100 btc in the 2017 phase, If you will not forget about the past and make the lessons out of it, you will only dig yourself a bigger hole.

 

Only those who can control themselves inside a manipulated financial system will find themselves holding great powers and skills which no one in the world can ever take back from them once learned and maintained.

 

If we were to compare planet earth to the human body, money for me was the blood that flows inside our veins. money moves in certain ways, it goes up from the whales to the small fishes as salary paychecks and small incentives like bonuses at work for selling their freedom, and it goes up back in taxes, fees, high prices and economy manipulations.

eventually the money always flows inside this circle.




BREAK THE CIRCLE. PROTECT YOURSELF. BECOME UNSTOPPABLE.




Now that we have learned why is it important to keep up with a system,

let us begin!

with much love and appreciation as always.

dot from dotCrypto Boutique Trading.







The main question

 

The thing every single one of you has to ask themselves is “how much are you willing to risk per position or per trade?”

Different traders have different trading styles and different budgets.

We are going under the assumption here that you are a complete beginner. 

I will give in this whole guide an example of a young trader who has a 1k budget as a trading budget (this is not investing money), and you can scale yourself up to what's needed, if for example you got 5k to start with, just 5x the amounts in this guide.



Also, you need to ask yourself what your goals are, whether they are on the daily basis, monthly basis and yearly basis - and commit to yourself (in the daily trading basis) that if you lose the amount of money you plan to make on a single day, you leave the exchange and you go to drink beer until you refresh your mind and try again the next day. you are not getting into a tilt, if you said you were going to make 100 dollars a day and you lost 100$ a day, YOU GO TO SLEEP, and you try again tomorrow, fresh.



R:R - Risk to Reward Ratio Calculation

 

Trading, as we said, is business, not gambling, and like any deal or trade in life even outside the crypto market, we must ask ourselves how much are we willing to risk compared to how much can we potentially win.

 

The “R” (as in Risk) is defined as the price difference between your entry price (the price you purchased the coins or the position) and your stop loss, and the “R” (as in Reward), is simply the price difference between your entry price and your target (TP, Take Profit).

 

The “R” (Risk) of your trade should never be more than 2% of your portfolio, since you are holding multiple positions, and when you have more money, you even lower this number to the minimum possible. (And I didn't decide on that number, that's just how professional account managers do it).

 

Since we are trading in the cryptocurrency market, we will calculate are possible risk always in BTC amount at that moment, after all, we all know what matters the most and what is the main reason we are all trading, in order to enlarge our BTC portfolio, and you should always remember it in the next time you consider investing a super large amount of money on an altcoin.

 

RISK in BTC amount = Account Trading Capital X %RISK

 

Example: If your account balance is 1 BTC, and your risk tolerance is 2% out of your whole account trading capital, you afford to lose 0.02BTC maximum on a single trade.

 

NEVER EXPOSE MORE THAN 5% OF YOUR PORTFOLIO IN ANY MARKET, ON ANY POSITION, NOT JUST CRYPTO MARKET, BUT ANY MARKET.

THESE WORDS WERE WRITTEN IN BLOOD, SWEAT AND TEARS.



Trading with Risk : Reward

 

In order to calculate the R:R on a single trade we need only 3 factors:

-The Take Profit (TP)

-The Stop Loss (SL) 

-The Entry Price (Or prices, if we buy in multiple buy zones)

 

This calculation is very simple and every 5th grader knows how to solve it:

 

Total Amount of Risk / Total Reward from position on TP

 

For Example: 

ETH TRADE - a long position from 1000$ to 1200$, 

with a STOP-LOSS at 900$.

Profit from 1000 to 1200 : 200$ (20% out of 1000$)

Loss from 1000 to 900: 100$ (10% out of 1000$) 


In that case, our R:R Ratio is 1:2, because we are willing to risk a specific amount of money, and in return to make twice the amount.

 

Calculating of the risk on this position:  

 

1000 (Entry) - 900 (Stop Loss) [Which is 100, duh] /  1000 (Entry)

= 10% ;



RR can be insane, and just like in the casino, the bigger the R:R, the more likely the position will fail - which means you have to use less capital in order to protect yourself.

 

Using Leverage under Risk Managements 

When using leverage in trading, our liquidation level is a little bit below our stop-loss - so that means for example that if we have 10% allowed for our stop loss, we can use only max 10X leverage.

 

Leverages : Risk Ladder

 

1% loss = 100X max (until liquidation price in isolated mode)

2% loss = 50X max (until liquidation price in isolated mode)

3% loss = 33X max (until liquidation price in isolated mode)

5% loss = 20X max (until liquidation price in isolated mode)

10% Loss = 10X max (until liquidation price in isolated mode)

20% loss = 5X max (until liquidation price in isolated mode)

33% loss = 3X max (until liquidation price in isolated mode)

50% loss = 2X max (until liquidation price in isolated mode)



This comes into play only if we consider that our SL is our liquidation, that way, we can expose to the position only what we need, and keep the rest of the money for ourselves, without needing it to lay without a reason in the exchanges.



Example: 

Longing BTC from 50K to 55K (10%) , with a stop-loss in 45K (10%). 

A 1:1 RR position. 

 

In that case, we need to use 10 leverage OR LOWER (in 10X, our liquidation price on isolated margin mode will be 10% below entry price).

 

10% loss from entry price X 10X leverage = 100% loss of full position.

5% loss from entry price X 20X leverage = 100% loss of full position.

etc, etc, etc.

 

BEGINNER TRADERS SHOULD NEVER USE CROSS TRADING.

Only Isolated Trading!

When you’re using cross trading, you are using your whole futures account as a position margin, meaning you can lose above 100% position.

Isolated is the way to go for a beginner, that way you can only lose what you have put into the position in the first place (a.k.a in Binance: “Position Cost”)




A trading program for a beginner with a thousand dollars budget.



You either reach the goal of daily revenue, or you lose the maximum amount equal to this goal and sit aside, meaning you either make 50$ a day, or lose 50$ a day. nothing else. Once you make your daily target you go to sleep happy, and wake up fresh for the next day, you don't try to make more money because chances are you caught a pump and the market will dump on you pretty soon, so waiting after winning is super important.






(read next page)




Day 1 to 60 

(this is the worst period, I promise you it will be worth it at the end, just be patient, you owe it to yourself on the mistakes you have made in the past)

 

Initial Margin: 1,000$ 

Goal of daily revenue: 50$ daily 

Maximum risk : 20$ per position if liquidation is at stop loss (20$ maximum loss)

Maximum positions open in the same time: 2-3 

 

Days 60 to 90

Compounded Margin: 3,000-4,000$ (depends on your performance)

Goal of daily revenue: 130$ daily 

Maximum risk : 75$ per position if liquidation is at stop loss (75$ maximum loss)

Maximum positions open in the same time: 2-3 

 

Day 90 to 120

Compounded Margin: 6,500-8,000$ (depends on your performance)

Goal of daily revenue: 400-600$ daily 

Maximum risk : 200$ per position if liquidation is at stop loss (200$ maximum loss)

Maximum positions open in the same time: 3-4 

 

Day 120 to 200

Compounded Margin: 18,000-25,000$ (depends on your performance)

Goal of daily revenue: 1,100-2,000$ daily+ 

Maximum risk : 400$ per position if liquidation is at stop loss (400$ maximum loss)

Maximum positions open in the same time: 3-4 

 

Day 200 to 365 (The end of the program)

Congratulations! From now and on shit gets easier, you can risk little amounts from your budget and literally print shit ton of money safely

Compounded Margin: 25,000-100,000$ (depends on your performance)

Goal of daily revenue: 3000$ daily 

Maximum risk : 1000$ per position if liquidation is at stop loss (1000$ maximum loss)

 

Maximum positions open in the same time: 3-4 

credit to Dot


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Comments
Chandradevi - Apr 17, 2021, 7:19 AM - Add Reply

Good

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Sajjad - Sep 24, 2023, 10:59 AM - Add Reply

Good nice

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