Protection is more important than profit!
In the volatile cryptocurrency market, the size of your profits doesn't matter if you lose them all in a sudden correction. Risk management is the most important skill that separates a successful trader from a loser. The primary goal isn't "How do I win?" but "How do I avoid losing?"
Here are 4 basic rules you should adopt to protect your wallet and ensure you stay in the game in the long run.
1. Diversification: Don't put all your eggs in one basket.
This is the first and most important rule. When you put all your capital into one currency (even if it's Bitcoin), you expose your portfolio to a risk unique to that currency or project.
* How to apply: Distribute your portfolio across at least 4 to 5 assets from different sectors:
* Backbone: Bitcoin ($BTC ) and Ethereum ($ETH ).
* Promising cryptocurrencies: Layer 1 cryptocurrencies (such as Solana, ADA) or AI.
* Stablecoins: A small portion of currencies such as USDT/FDUSD to prepare for buying opportunities.
* Low-value currencies (High Risk): A percentage not exceeding 5-10% for the highest risk and highest potential return.
2. Never trade without a stop-loss order.
Stop-loss orders are your free insurance policy. Losses are an inevitable part of trading, but they should be small and limited.
* Application method:
* The fixed rule: Determine in advance the percentage of loss you can tolerate on any trade (often between 3% and 7%).
* Technical determination: Place the stop loss below a key technical support level or below a significant moving average (e.g., 50-day MA).
* Protected profits: When you achieve a large profit (e.g., 20%), move your stop loss to your entry point (Break Even). This ensures the trade will never turn into a loss.
3. The 2% rule: Strict adherence to the deal size
This rule relates to the amount of capital you allocate to a single trade. This is the most powerful mechanism for controlling your portfolio:
* Maximum risk: Never risk more than 2% of your total portfolio in any single trade.
* Example: If you have $10,000. If you decide to enter a trade that requires a 5% stop loss, the size of that trade should only be $4,000.
* (2% of $10,000 = $200 potential loss. If the stop loss is 5%, then the trade size is $200 / 0.05 = $4,000).
4. Take your profits away
Many traders lose their profits because they became greedy and didn't take their earnings in a timely manner. You must have a profit-taking plan.
* Application method (partial sale):
* First objective: When you achieve 10% to 15%, sell 25% to 50% of the quantity.
* Second objective: When you achieve 30%, sell another batch.
* Importance: This ensures that you "free up" your original capital to risk in other trades, and let the rest grow without fear of loss (Free Ride).
🔑 Summary and an invitation to interact
Risk management isn't complicated; it requires discipline. Adhering to these four rules will protect you from being swept away by any sudden market downturn.
Question for discussion: What is the most important rule you personally apply to protect your portfolio from collapse? Share your wisdom with us!
