HFM information and reviews
HFM
96%
FXCC information and reviews
FXCC
92%
FxPro information and reviews
FxPro
89%
FBS information and reviews
FBS
88%
XM information and reviews
XM
86%
NordFX information and reviews
NordFX
86%

How To Cut Losses Trading Cryptocurrencies


Even good trading and investment strategies can lead to portfolio losses if the basic rules of money management are neglected. In addition to the basic rules typical for investing and trading any assets, the crypto industry is characterized by a number of additional rules that are meant to reduce losses. Let's consider these recommendations today so you can enhance your crypto trading performance and benefit from any situation on the market.

Importance Of The Position Sizing

To understand the basics of money management, it is important to repeat the axiom of the market that no analyst forecast, paid VIP channel signal, or own analysis can be a hundred percent true every time but only represent a greater or lesser probability of events developing in a certain way. Users who keep statistics of their trades may notice that even the best working crypto trading strategies have a certain margin of error. For example, if nine out of ten trades within one strategy are closing with a profit and one is losing, the user's primary concern is not to get into such a trap of periodic inaccuracy with excessive or even all of the capital.

What can be done to prevent this? First, it is recommended to completely eliminate the approach briefly described by the phrase "all in". Having tested a trading strategy on small positions and noticed that it works and brings profit, traders are tempted to place a similar order for the whole deposit and finally make a good profit.

There is a chance that trade placed with the whole deposit will be unsuccessful. The losses incurred on such a trade will exceed the profits of all previous small trades and all the work done on the trading strategy will turn out to be in vain. It does not matter that a trade opened with the whole deposit can turn out to be successful several times. Such random successes without a well-thought-out crypto trading strategy will lead users further down the road of errors, and a big loss will be just a matter of time. A set of positions of equal size within one strategy is considered to be the recommended approach. In this case, an unsuccessful trade is no longer an event or a tragedy, but an expected event the user is ready for.

What Part Of The Deposit Can Be Allocated For A Trade?

There is no single answer to this question because the decision depends on the individual situation of each portfolio, its size, and the riskiness of the assets of interest. Here is a simple guideline: for spot crypto trading not more than 1/10 of a portfolio per position, for leveraged trade positions the above value should be reduced by the leverage value. Thus, for high-risk trades with 5-10x leverage and above, the position size can be as little as 0.5-1% of the trader's portfolio.

When it comes to long-term crypto trading, the rule of no more than 1/10 of the portfolio per position will also be true for major altcoins in terms of market capitalization. The only exceptions may be the flagships of the BTC and ETH sectors, whose share in the portfolio may be significantly higher. The share of small-capitalization and new riskier projects in the portfolio should be extremely small because the crypto space is characterized by an extremely dynamic rotation of technology trends and popular projects.

A service that records the historical market capitalization of blockchain assets helps to visualize what may happen to most projects over time. Most of the coins and tokens of the past years that once topped the list will not be at all familiar to beginner traders, being on the "margins" of today's crypto world.

Understanding Crypto Portfolio Diversification

One approach to portfolio capital allocation is to buy a diverse range of assets representing different sectors of decentralized solutions: systems projects, exchange tokens, projects running on DAG and other blockchain alternatives, decentralized file storage, data and computer capacity markets, DeFi, content, and video hosting platforms, DAO, Metaverse, and NFT platforms, Internet of Things, decentralized identity, data encryption, and many other sectors.

It's hard to call a balanced portfolio that contains assets from only one industry, or different industries are represented by projects from the same blockchain-based ecosystem. Even a well-diversified set of assets by industry would be risky if it is overly tied to only one blockchain. If all of a user's assets represent a single ecosystem, the risk of the entire portfolio collapsing in the event of problems with the main ecosystem coin's network will increase significantly.

The notion of diversification in crypto trading broadly refers to many types of diversification: diversification of technology sectors, diversification of blockchains and ecosystems themselves, diversification of DeFi-platforms and centralized exchanges, diversification of software and hardware that work with blockchains, and, last but not least, diversification of how cryptocurrency is stored.

Conclusion

As we often repeat in our articles, there are risks in any financial operation. And the main task of an investor is not to refuse risk in general, but to choose a decision – to what limits it makes sense to take this risk. In any type of investment, it is necessary to be able to determine risks in advance and correctly. In other words, it is necessary to understand what potential profit we expect and what losses we are ready to accept.

Also, all of the above recommendations will not produce results without systematic trading, meaning keeping records, calculations, and analysis of all open positions.

#source


RELATED

All You Need to Know About Trading in the Best UK Penny Stocks in 2021

Ford, JD Sports, and Monster Beverage were among the many well-known firms that once traded for less than 1 pound a share. Those who bought these businesses...

Five Tips To Choosing The Right Strategy On Covesting

The Covesting copy trading platform has now been available on PrimeXBT for over a month following an extended beta phase. Between the beta and the ongoing...

Unlocking the Potential of Asset-Backed Cryptocurrencies: An In-Depth Exploration

Imagine blending age-old investment wisdom with the groundbreaking digital currency sphere. The infusion of the US dollar into blockchain technology, or endowing cryptocurrencies...

Deep-Dive With Us: What Is Tron?

What comes to mind when you think of the word "Tron?" For some, it's a cheesy 80's movie. For others, it's a promising blockchain platform. In today's article, we'll take a look...

What Factors Affect the Price of Cryptocurrencies?

Do you want to trade cryptocurrencies but need to know when it is better to sell or buy them? What happens to the prices in the crypto market, and what should you consider?

Some things you need to know about investing in cryptocurrency

Whether you have thought about investing in cryptocurrency for a long time or it is an idea that sprang up recently, there are some things you should know before getting started...

NEO Price Prediction: Invest or Skip?

NEO isn't the most popular cryptocurrency, especially when compared to Bitcoin, Ethereum, Tether and Ripple. Currently, it's ranked only 26th by CoinMarketCap in terms of market capitalisation...

HotForex Grand Seminar 2018

Our webinars are designed to improve your FX knowledge and help you hone your trading skills to give you the confidence you need to trade the markets...

What is a Crypto Saving Account? How to Earn Interest on Crypto?

One of the best ways to earn when it comes to financial markets is through this steady return of interest. While most bond and stock traders understand the ability to benefit from interest accounts...

The Relationship between Gold and the USD

If you have been reading our research articles, you must have seen that our analysts very often talk about the negative correlation between gold and the US dollar...

Trading Bitcoin and Ethereum on Forex

The sharp rise in the price of Bitcoin has led many Forex traders to try to trade in Bitcoin and other altcoins. Indeed, if there is a financial asset that demonstrates...

What Is Crypto Lending and How Does It Work?

Crypto lending allows cryptocurrency owners to lend their coins to borrowers. They will gain some profit as a result of this. It's more like putting money in a savings account...

Forex Hedging: Shielding Your Business from Foreign Currency Risk

Forex hedging stands as a cornerstone of currency risk management, a strategic shield that businesses employ to safeguard themselves against losses arising from the unpredictable fluctuations in foreign exchange rates. In essence, it involves the acquisition of financial instruments or products to shield an enterprise from unforeseen shifts in exchange rates.

How Is the Bitcoin Price Determined?

To be a profitable trader of Bitcoin (BTC), you need to understand what determines the Bitcoin price. The markets are much like many others, as they need to consider the supply and demand and adoption issues when it comes to BTC...

Markets.com: Thousands of markets to trade

With Markets.com you can trade every market twist, turn and trend with a vast range of assets, including our thematic Blends, weighted baskets of stocks focused...

What Is Cosmos Crypto?

Scalability and interoperability have been two significant problems for the blockchain world. There are a handful of options for interoperable blockchain networks...

Everything you Wanted to Know about Dogecoin

Sometimes, the best things in life start as a joke, and Dogecoin is not an exception. Initially created as a joke in December 2013, based on the popular Doge meme of a Shiba Inu dog...

Smart contracts explained: What is a smart contract?

Smart contracts play an integral role in the blockchain ecosystem, enabling the creation of decentralised applications (DApps) and programmable payments. In this guide, we will explain...

Libertex: How to invest in crude oil

Crude oil prices are affected by perceived shortages, excess supply and weather conditions, among other things. In addition, the price of oil is often considered one of the main benchmarks...

Slippage: How to Get Your Desirable Price

Slippage is a term that is used frequently in finance and applies to forex and stock markets. Slippage can bring you either loss or higher profit...

Vantage information and reviews
Vantage
85%
FP Markets information and reviews
FP Markets
81%
IronFX information and reviews
IronFX
77%
T4Trade information and reviews
T4Trade
76%
Exness information and reviews
Exness
76%
Just2Trade information and reviews
Just2Trade
76%

© 2006-2025 Forex-Ratings.com

The usage of this website constitutes acceptance of the following legal information.
Any contracts of financial instruments offered to conclude bear high risks and may result in the full loss of the deposited funds. Prior to making transactions one should get acquainted with the risks to which they relate. All the information featured on the website (reviews, brokers' news, comments, analysis, quotes, forecasts or other information materials provided by Forex Ratings, as well as information provided by the partners), including graphical information about the forex companies, brokers and dealing desks, is intended solely for informational purposes, is not a means of advertising them, and doesn't imply direct instructions for investing. Forex Ratings shall not be liable for any loss, including unlimited loss of funds, which may arise directly or indirectly from the usage of this information. The editorial staff of the website does not bear any responsibility whatsoever for the content of the comments or reviews made by the site users about the forex companies. The entire responsibility for the contents rests with the commentators. Reprint of the materials is available only with the permission of the editorial staff.
We use cookies to improve your experience and to make your stay with us more comfortable. By using Forex-Ratings.com website you agree to the cookies policy.