No cryptocurrency trader can expect to be successful without risk minimization. Remember that you should not take anything for granted, regardless of how well you think you have established your trading setup. While it is pretty much impossible to not take a hit every now and then, with the right risk-management strategy, you will be able to stay on your feet in the long run.
In this blog, we will discuss some important strategies that you can implement in order to reduce both your chances and the extent of Bitcoin losses. Read more about bitcoin selling and buying on the crypto engine official website
How to Minimize the Risks Associated with Bitcoin Trading?
1) Counterparty risk protection:
Even though the digital currency market is associated with huge percentage gains, it is not without its problems – and one of those problems is counterparty risk. Once you complete a Bitcoin transaction, you cannot go back and reverse it, which means that you should conduct comprehensive research regarding an exchange before trusting them with the private keys to your account.
Being a crypto trader means accepting that there will always be some degree of counterparty risks involved, but here are a few other ways to reduce them significantly:
Take your coins off your exchange as soon as you stop trading for the day.
Avoid trading with more than 30% of the portfolio.
Diversify Bitcoins across multiple exchanges.
2) Avoid prioritizing quantity over quality:
Traders indulging in over-trades might not realize it, but they are essentially wasting both their money and time. Trading effectively means understanding that it is the quality of your trading that matters and not the quantity; you cannot expect every market condition to prove favorable for your trading strategy. For instance, if the market is undergoing strong trends, you should probably go for swing trades, whereas you should switch to automated scalping during times of stability.
This means that finding quality trades is about choosing a trading style and then figuring out the market conditions that work best with that style.
3) Have an effective exit strategy:
You must use the charts to highlight the vital resistance and support levels, and use your research to map your trades out well before time. Also, make sure to calculate the risk-reward ratios, as well as establish profit-taking targets. As a trader, you can use a strong trend to supplement your position, or you can scale out and lock your profits.
Do not start trading until you have established stop-orders that can shield you should the markets decide to take a turn for the worse.
Avoid using excessive leverage:
It is not uncommon for traders to prefer margins, considering that they increase the size of the order alongside giving them the option to go short or long. Having said that, excessive leverages might keep your trade from breathing freely or sufficiently, making you prone to losing the whole principal amount due to forced liquidation.
You will find exchanges offering even x100 leverages, but you need to remember that, at such high leverage levels, a 1% unfavorable move is often sufficient to ruin your account. Therefore, we recommend going with an x3 leverage, as this will permit you to boost your gains while simultaneously providing a buffer, in case you want to cut your losses. There is only one instance in which this rule might not apply, and that is if you want to scalp smaller time frames in case of market volatility. As a rule of thumb, the longer the holding period, the lesser the leverage should be.
Like we mentioned at the start, there is no reward without risk. However, that also does not mean that you need to take risks where you can mitigate or even avoid them. We hope that this blog will help you formulate a trading strategy that will help you maximize your Bitcoin profits while minimizing the chances of losses.
The article does not contain investment recommendations, or recommendations to use the service described in this article. All the opinions expressed express exclusively the personal opinions of the author and the respondents. Any activity related to investing and trading in the markets carries risks. Make your own decisions responsibly and independently. Neironix is not responsible for the safety of your investment and does not make any recommendations