Risk Management Basics for Crypto Traders

Finding great altcoin calls can be tough.

We all want to limit losses and maximize gains but, as crypto traders, we subject ourselves to highly volatile assets. A wise strategy is required to make sure your investments continue to grow even after taking a few consecutive losses.

Let’s cover some ground and help you become a more profitable trader!

Reduce Crypto Trading Risks

TotalCrypto doesn’t want to tell you how to invest your funds. However, we do believe some general advice is worth considering at times. Thus, we’ve crafted a list of rules that might be worth applying to your trading strategy.

Check the “five risk management rules for crypto traders” that we’ve listed below. There’s golden info here for day traders, swing traders, hodlers, etc.

Never Put Your Whole Roll in One Trade

You need to respect your cryptocurrency day trading capital. Compare protective your crypto funds to running a bankroll management strategy in online poker. The idea is that you progressively grow your balance and that’s not possible if you put 100% into a single position.

It’s common sense, something people tend to ignore

Don’t go all in on your trades!

Why Going All In Doesn’t Work

Let’s say your risk tolerance is high. You look for volatile trades that could increase your bankroll by 20% or more within just a few days. These plays also come with some significant downside risk, we’ll say the market could slide up to 20% before your stop hits.

Here’s the damage that multiple losses back-to-back will do…

Trade 1

  • $10,000 invested (20% loss)
  • $8,000 remaining

Trade 2

  • $8,000 invested (20% loss)
  • $6,400 remaining

Trade 3

  • $6,400 invested (20% loss)
  • $5,220 remaining

Three consecutive losses result in a nearly 50% total loss. Let’s say you let these trades run until you hit your 20% stop or the price is up 20% or more. Below is how the next three trades would look if they were all winners.

Trade 4

  • $5,220 invested (20% gain)
  • $6,264 after profits

Trade 5

  • $6,264 invested (20% gain)
  • $7,517 after profits

Trade 6

  • $7,517 invested (20% gain)
  • $9,020 after profits

Playing with 100% of your stack puts you at a nearly 10% downfall when the trades are even. If the price went up before going down, the situation would be similar (but worse):

Upswing from 10k: 12k > 14.4k > 17.3k

Downswing from 17.3k: 13.9k > 11.1k > 8.9k

Understand the message here?

Your bankroll will get eaten alive if you put it all into every trade you make. The damage done by a 20% loss is not so significant if it only impacts 10% of your funds. Instead of the 10% disadvantage illustrated above, you would endure a 1% hit.

Furthermore, putting 100% into your trades will change your trading mentality for the worse. Your potential losses are much greater

Portion Your Funds Instead

Portion your funds.

A common tactic is to segment their overall budget based on risk levels. For instance, low-risk trades that can be held safely for months should take up the largest portion of your holdings. Meanwhile, high-risk trades, such as small cap coins and margin trading, will take up a small portion of your funds.

Here’s a great example of how crypto traders visualize their crypto fund allocation:

Let’s dissect this breakdown for a moment…

Gambling (5%)

Why is the first section labeled as “Gambling?” Because, risky plays (such as using high amounts of leverage) will “break the bank” sooner or later. You can’t make these moves with all of your capital as it will inevitably go to zero. So, allocate a portion of your “Gambling” funds for each trade that’s made (risk maybe 5-10 percent per move).

The idea is that you’re not risking 100% of your ‘Gambling’ funds at any given time either. This allows you to focus on growing your balance in each category separately.

High Risk (15%)

Think about a low to mid-cap altcoin’s potential price changes in a 24-hour period. Typically, the coin might fluctuate by up to 10 percent daily. A major announcement could send the price up 10 to 200 percent in hours or days. These juicy plays need to be captured in the moment, but throwing up to 15% of your bankroll at them can result in fast profits.

Let’s say you have $10,000 to risk …

15 percent of your balance is $1,500 which is the max you will place on one trade. You buy an altcoin when it makes a bullish breakthrough or after a big rumor or news announcement is made (but before the price swings up). Let’s say the coin rises 50 percent that day, your gains would be half of $1,500 which is 7.5 percent of your total bankroll. On the downside, your stop will likely be no more than 10 percent below your entry price… capping your potential loss at 1.5% of your total bankroll. These trades offer great “risk to reward ratios” as well.

Medium Risk (30%)

These trades aren’t very risky because it takes major speculative developments to move the price by more than a smidgeon. These coins can be seen as alternatives to fiat or BTC when looking for a reserve currency during your non-trading times. For example, if you trade periodically you might keep your capital in a trendy crypto with a 7-figure market cap.

Your medium risk plays should be viewed as long-term holds. However, as none of your portfolio allocations is destined for fiat, it’s important to switch to cash when the market plays against you. For example, the “crypto death cross of 2018” was a time when it was abundantly clear that you could sell your mid-term holds and hold off for a better entry price.

Low Risk (50%)

This tier is where you park your long-term investment funds that don’t need to be liquidated in a hurry. Think of coin lending, long-term holding and even purchasing masternodes, when seeking a long-term cryptocurrency investment.

Learn how to leverage trade and you can get the gains of 100 percent of your stack in one big trade while putting up only a tenth of that. Tight stops will protect your investment enough times that you can hit your big winners and ensure that you are progressively growing your bankroll.

Dollar Cost Down on Bad Trades

“You only lost if you sold.”

It’s an all-too-common saying in the crypto world. However, it holds true and some altcoin day traders make good use of this advice. The key is to establish a plan that works and know when to ditch a horrible play.

Here are some potential scenarios…

1) Lose 50%

  • You buy XYZ coin for $1 each
  • The price goes down to 50 cents each

2) Lose 75%

  • Same entry price of $1
  • Price moves to 50 cents
  • Keeps going down to 25 cents

Now, let’s say you “dollar cost average down”. To do this, think about how far the market could decline if it fails to sustain a bullish move up from your entry price.

Let’s pretend for this example that a support trendline exists around 75 cents. If the price bounces here, it could easily revisit $1+ and put your investment into the green. A confirmed break of 75 cents would signal that you should pay attention to how the market moves and start timing your entries.

You could have trailing buys (70 cents, 60 cents, 50 cents, 40 cents, each for 25% of your funds), or you might buy 100% at once at the lower rate. The latter only tends to be preferred when you’re dealing with long-term holds. Meanwhile, laddering your entries aggressively will

Let’s pretend you already have a big bag and need to aggressively reduce your average cost per coin. Skip the risk of not hitting some of your prices on the way down by buying in at only one or two price points. So if you have $10,000 in at $1 you might try to buy $10,000 more at 50 cents. The result would be a reduction in your average cost per coin to only 75 cents.

The argument for dollar cost averaging down 

Let’s assume the coin isn’t dead forever. It wasn’t hacked. No scams were called. The price is simply dropping for the near to mid-term. Increasing your coin holdings while reducing your cost per coin gives two major benefits.

1 – Your exit price will be much lower. If you just want out of the trade, to break even, you don’t need the price to reach as high as it was when you bought. Lower highs in a downtrending market are commonplace and the dollar cost averaging down strategy accounts for that.

2 – Your bags will be larger in case the market reverses. Your profit will start at a lower price point and your returns will be more than before you dollar cost averaged into a larger stash.

Imagine the difference if you invest another $10,000 and the price reaches $2.25, what would happen? You would make $40,000 in profit instead of the measly $12,500 you would’ve earned if you didn’t dollar cost average during a crashed market.

There’s a learning curve to dollar cost averaging… But it’s worth the focus. Don’t play the swings unless you’re highly experienced. The biggest losers are the traders that buy more, sell during a panic and wait to buy back in — doing that could actually increase your average cost.

Monitor Investments with a Portfolio Tracker


Many speculators get too involved with their investments and cause themselves to go bust. The smartest traders have their investment broken down into separate funds (like illustrated in our first tip). With a portfolio tracker, you’ll become more connected with your long-term holds and feel less inclined to liquidate them when other investments arise.

Your day trades need to be monitored more aggressively to protect your capital. The best way to day trade any altcoin would be to chart it on TradingView or a similar platform.

Determine where your targets and stops are before entering your position. Watch how the action progresses and make adjustments on the fly. Also, any charting platform that’s “worth its weight” will let you pull data from various exchanges as well. Set up alerts to track your swing trades but, ideally, watch and play your day trading scalps in live time.

Which crypto portfolio tracking app should you use?

For desktop 

For mobile

Note: Cryptocurrency portfolio tracking applications often cost money, typically a monthly fee. Keep this in mind when comparing the options. Many of these apps also have free versions with limited features or a lack of compatible exchange APIs.

Learn Trend Reversal Confirmation

Cup and handle chart trading pattern

Nothing is more profitable than knowing how to spot a trend reversal as it happens. The pinnacle moment is when a cup & handle forms on a weekly chart and the handle breaks to the upside. At that moment, the price of the coin typically rises dramatically and doesn’t fall back down unless the whole market is in a downtrend. You will also want to watch out for a “Golden Cross” which can send a crypto’s value up at a parabolic rate.

Trend reversal plays typically feature very appealing risk-to-reward ratios.

Look for upward breakthroughs on triangles when you play with charts. Make sure there’s a volume confirmation behind the breakthrough and the follow-up candle. We talk about how you can find these juicy entry opportunities in our crypto technical analysis guide.

Never get stuck holding a position when confirmation happens that the price trend has reversed downward. Liquidate immediately because the volume that comes during a confirmation move will result in a swift leg down.

Risk Management = Profits!

We’re recommending risk management practices to all altcoin traders. The volatility of these speculative assets is second-to-none. Your funds will evaporate to nothing if you don’t protect your capital in a smart manner.

Risk management is all about trading with reasonable portions of your stack. Compare this to online poker where people will have at least XX buy-ins to a cash game or tournament at any time.

The idea is to reduce the damage and risk of future losses so you can continue trading longer. If you’re a smart trader, you’ll avoid going bankrupt and stick around to catch big winners and see your bankroll consistently grow. Plan your risk management based on your trading style; what works for day trading crypto is often irrelevant for holders.

Further Reading At TotalCrypto.io
1) Scratching Your Head Wondering Which Are The Best Cryptos To Invest In 2018? We Reveal Our Top 5 Choices.

2) Want A Trading Platform That Allows You To Copy Trades From Expert Crypto Traders? Find Out Why eToro Might Be The Place For You.

3) Need Help Getting Your Crypto Trading Career Off The Ground? Our Day Trading Crypto 101 Guide Reveals All.

DISCLAIMER: Be aware that the activity of cryptoassets mentioned in this article is unregulated. This article must not be construed as investment advice. Always do your own research.

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