Authored by: @hetty-rowan

One of the most important things to consider in cryptocurrency trading is your RISK MANAGEMENT. It is also one of the least popular concepts in crypto. Because we do not want to think at all about the risk of losing money when we invest in crypto trading. We would like to believe that as soon as we get into crypto, that we immediately make a profit, and unfortunately… this does not happen. You can immediately forget that illusion. Especially if you don't have a good risk management plan. If you enter the market without having acquired a little knowledge and without a risk management plan. Then you are basically just gambling. And we usually say about gambling; "That's good for losing money".

Yes, trying to trade without a little knowledge, and without risk management, you can get a little profit. I will not deny that. I did it that way myself. But it can also cause you to lose money. And losing that is what we don't want. And if there is no other option… then we want to limit that loss! Trying to estimate in advance what the risk is with a certain trade. Someone who trades according to their own strategy is a crypto trader, someone who trades without a plan is a gambler.

Good risk management is indispensable for a good trading strategy.

### Understanding your technical analysis tools is important. But this risk management is actually even more important than the technical analysis tools.
### Play the game! Consider trading on an exchange as an exciting game where you try to stay 'in the game' for as long as possible. To be the last player to be left, you want other players to barely be able to take money from you, but you want to be able to win as much as possible from them. If you make a wrong trade and are therefore on the losing hand, you ensure by means of good risk management that your losses in this trade remain minimal and that players can hardly cause any damage to you. Are you not doing this? Then you risk that with one price move you are game-over and that you have lost all your money. On the other hand, when you are winning, you want to take as much money as possible from the others and maximize your winnings. It is up to the opponents to manage their risks and you benefit even more when they do this incorrectly.
> "Trading is about minimizing your losses and maximizing your winnings."
Risk management is mainly about minimizing your losses. The minimization of this is at least as important as the realization of profits. The more you lose, the more difficult it will be to recoup this money.

A simple table to show you how much you have to win on a trade to get 'break even' again if you have lost.

Loss of your portfolio	% Needed to break even again
10%	11%
20%	25%
30%	43%
40%	67%
50%	100%
60%	150%
70%	233%
80%	400%
90%	900%

As you can see, it quickly becomes very difficult to achieve those profit percentages. And the further down you go, the more impossible this becomes. So if you lose about 90% of your portfolio, it is virtually impossible to get back to break even in a trade, and you will have to make a lot more trades to recoup your loss. Having a risk management strategy prevents you from losing so much and that's what sets a trader apart from a bettor!

Stop-Loss!

Now that you know why risk management is so important. Of course you also want to know how much risk you can take per trade. And that is different for everyone. There is no such thing as a standard that says “maximum 1% of your portfolio”. That is a personal choice, but a choice that you have to make in advance. And stick to that too. Because this choice determines where you bet your Stop Loss and Take Profit!

But uhm… What is Stop-Loss?

Ah, now we're talking! Depending on which exchange you are going to trade, you can set a Stop-Loss order. And believe me, it is important to understand this. Because this prevents you from seeing 35% of your portfolio evaporate, so to speak. Cryptocurrencies often tend to follow the price of Bitcoin. And the moment Bitcoin undergoes a correction as it is now, for example ... many other cryptos will follow. Where you sometimes see a crypto dive at a dizzying pace, and if you just happen to be away from your PC, you could have lost quite a bit of money in a few minutes. This can be prevented by thinking in advance how much you want to lose!

Suppose the price of Bitcoin is currently on the support line of ± 40000 dollars and you are convinced that the price will rise. In that case you want to buy the cryptocurrency, but honoryou will see from what moment you can admit that you were wrong. There is a strong support at ± $ 38000 so you consider that if the price falls through that, then there is still too much negative sentiment and you better take your loss and buy the Bitcoins later for a cheaper price. You then put your stop loss around $ 38,000, for example. To determine the support and resistance levels, you use the Technical Analysis tools.

But how do you set the Stop-Loss? I usually use Binance myself, and there I know that it is called Stop-Limit order. I really do not dare to say this is the same on other exchanges, partly because I have only recently known and can apply this myself.

Okay, an example… We start from the example above. You bought your Bitcoin at 40K USD. At this point, you are going to set a Stop-Limit order in Binance. You do that as follows. You click on Stop-Limit

Now enter the amount 38100 at STOP in this example, and at LIMIT you enter 38000 and remember to do this in the SELL part of the window.

What you've done now is tell Binance that the moment the Bitcoin price drops to 38100, place my sell order for 38000. You will now automatically SELL your Bitcoin. The moment Bitcoin hits 38000, your order will be filled for 99.9% and your loss will be limited. If you set the STOP and LIMIT price both equal, you have the chance that there are so many more orders with that price that your order will enter the system just too late, and due to the rapidly falling price of Bitcoin, it is no longer filled. Because suppose that 20K Bitcoins suddenly enter the system at the same time and there are only 19,000 people who want to buy Bitcoin for that price. Then it may be that your order is not filled in and because of the rapidly falling price you lose a lot more because your order is no longer filled.

To avoid this, always set the STOP a little higher than the LIMIT, in the case of SELL!

Work the other way!

However, this can also work the other way around. Suppose you had not set a Stop-Loss at 38000 and decided to sell at 38000. But suddenly Bitcoin has gotten back on its hips and has rapidly increased to 45000. If you had set a Stop-Loss now on 42000 you would have automatically bought Bitcoin, albeit a little less than what you had before. But you could have piggybacked on the increase in price to reap more profit in this situation than if you had not automatically bought with the Stop-Loss setting.

In the case of BUY you always place the STOP a little lower than the LIMIT!

Accept it, and take the responsibility to win later

This is an important part of risk management to determine in advance how much your loss may be. By accepting your loss, you can later buy back the Bitcoin with a further falling price to eventually end up with more profit again. Another important advantage is that your emotions cannot take over. If you are looking at your screen you hope and expect much sooner that your price will pick up if you see a small upward movement. The chance that you will then hope against your better judgment that it will turn around quickly and therefore accept more loss than you would actually like.

Support and Resistance

Now an important question automatically arises. WHERE do you place such a Stop-Loss now? For example, if you buy Bitcoins, you assume that the price will increase. If this does not happen and the price falls, then there will come a point where you can conclude that you were not right with your trade. The moment you come to this conclusion is most likely below the support level.

If a price falls below that, it means that the sellers currently have the upper hand, because they are able to break a support level. That support level will also become a resistance level. The chance that the price will rise back through this is not that great, so then you better take your loss and accept that you were not right. You can then buy these Bitcoins back for an even lower price. For this it is important to learn where the support and resistance is, and how you can determine this yourself! In this post I wrote more about that. If you missed it, this is definitely recommended to read back.

An absolute MUST to understand Stop-Loss

If you are going to trade, a stop-loss is an absolute must, because you don't want to belong to the group that has lost 95% of its portfolio. There have been plenty of stories of people who have made millions, but who, after the market collapsed and have paid taxes, had almost nothing left of that money. Now I dare not claim that none of them had set their Stop-Losses. But there will certainly be people who have not done this, and have lost a lot of money as a result. Another part of I think these stories have more to do with emotions, and never forget that when emotions come into play, 9 times out of 10 you make the wrong decision.

Not too far from the current price

It is also important to mention that you never want to put a stop-loss too far from your current buy or sell price. If you buy a Bitcoin for $40000 and set your stop loss at $5000, it will also be of little use to you. I assume that you have already understood this after reading this article.

Next week PART II

Next week I will tell you more about Risk Management, and the R's that traders have to deal with, and which you also have to learn to calculate if you want to start trading seriously. For now I hope that you can at least already limit your loss, and even better take your profit with the Stop-Loss!

Happy trading!

At least I hope it will still be “HAPPY TRADING”, because the markets have been mostly red for about six days. In addition, it is secretly quite a lot of information that comes to you to learn how to be a good trader.

Last but not least, I AM NOT A FINANCIAL ADVISOR**! Do your own research!

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