5 Tips for Successful Risk Management and Profitable Crypto Trading

When you enter the crypto markets, you are opening yourself up to incredibly lucrative opportunities, but also to an exceptionally high level of risk.

There are plenty of advantages to digital currency trading, such as a volatile market where you can trade long or short, 24/7, making huge profits from price shifts in either direction. However, crypto is characterized by heart-stopping volatility. For example, the first half of 2021 has seen Bitcoin hit a peak of over $64,000, before suddenly plummeting to half that price

So, if you have the nerves for this fast-paced roller coaster ride, you will want to put a rock-solid risk strategy in place.

Different Risk Management Techniques

different risk management techniques in crypto

Profitable crypto trading is dependent on being aware of, and shielding against, the dangers inherent in entering the crypto arena. Every trade, however safe it may seem can go wrong in an instant, so you need to have mechanisms in place to protect your capital. These include a detailed trading plan, an array of risk management tools, the right mindset and a low-risk trading strategy.

Successful trading doesn’t mean that all your positions have to close in the green. In fact, you can earn Bitcoins and make a profit from cryptocurrency, even if the market doesn’t always go your way, so long as you have a risk strategy in place to minimize your losses on a losing trade.

Risk Management Tips for Cryptocurrency Investment

risk management tips for cryptocurrency investment

Stay the Course, Stick to the Plan

The most important preparation you can do before diving into the crypto market is to create a trading plan. Then, it is critical that you don’t deviate from it. Particularly for less experienced traders, in the heat of the moment, this can be harder than it sounds. When adrenaline is high it can be difficult not to chase a trade and to remember why you wanted to limit your investment size or set target prices for exiting a winning or losing position.

Calculate the Risk to Reward Ratio

When it comes to getting Bitcoins, and making a profit, not all opportunities will be equally lucrative. Use all the tools you have on hand to help you analyze the markets, from a cryptocurrency profit loss calculator to technical indicators that will return targets and indicate price direction. By combining the level of invalidation and the price target you can calculate your risk to reward ratio, which should, at the very least, be 1:2 for every trade.

Tailor the Position Size to the Trade

Once you have decided on the most potentially profitable crypto trading pairs you need to determine the size of your position, which will be different for each trade. Some trades are riskier than others, so with a high-risk opportunity, for example, you would be wise to open a smaller position, exposing less of your capital in case the market goes against you.

Use Risk Management Tools for Every Trade

The most valuable risk management tools available to crypto traders are Stop Loss and Take Profit orders.

A Stop Loss order is a means of automatically programing your position to be closed if it hits a predetermined price below its current value. It’s a way of ensuring that you can cut your losses and exit a losing trade before it goes too far in the wrong direction.

It is also a good idea, when you are trading profitable crypto trading pairs and the market is going your way, to place a Take Profit order. This is also a preprogrammed instruction to exit a trade, but it is for a price above the current value. The idea of using a Take Profit in a cryptocurrency trade can seem counter-intuitive as you don’t want to limit your success, but it is critical, as it prevents a scenario where you are away from your computer, and the coin that was rising in price suddenly takes a downturn and you lose all your gains.

It’s important not only to know when to accept a loss, but also when to take a profit in cryptocurrency trades and quit while the going is good.

Accept It. You Can’t Win Them All

If you can’t afford to ever make a losing trade, then you certainly shouldn’t be entering the highly volatile crypto markets. One of the biggest challenges facing new traders is to accept losses as part of the journey and understand that if you know how to mitigate the damage of unsuccessful trades, you can still come out ahead, overall.

Those who are incapable of accepting losses tend to find themselves holding on for too long in the hope the coin trajectory will reverse, so they end up digging a deeper hole and losing much larger sums. This is the reason Stops, and detailed trading plans are so crucial.

Low Risk Crypto Asset Management

low risk crypto asset management with Arbismart

Another way to protect your capital is to choose a form of crypto trading that is inherently low risk. Among the least dangerous, and most profitable, crypto trading strategies out there is crypto arbitrage.

Crypto arbitrage involves taking advantage of temporary price inefficiencies. These are brief intervals in which a coin is available on a number of exchanges, at different prices at the same time. Here at ArbiSmart, our automated crypto arbitrage platform is connected to 35 exchanges which it scans 24/7 looking for these short-term price inefficiencies. It will buy the coin at the lowest available price and then sell it at the highest available price to generate a profit on the sptead.

So how profitable is crypto trading using arbitrage?

At ArbiSmart, you earn passive profits that start at 10.8% and reach up to 45% a year, based on the size of your investment. You also receive compound interest on your earnings as well as capital gains on the rising value of the ArbiSmart native token, RBIS, which has already more than quadrupled in value in just two years.

To learn more about crypto arbitrage, see our Arbitrage page.

Want more top tips and strategies for safer and smarter crypto investing? Check out the ArbiSmart blog, which covers a huge range of topics relating to the emerging fields of blockchain, crypto, and DeFi.