Help Mitigate the Risks Involved in Bitcoin Trading

Nothing is ever certain, no matter how amazing you believe your trade setup is. One of the key components of effective trading is risk control. Every trader occasionally has losses, but a strong risk management plan will help you stay in the game for the long run, especially when trading bitcoin.Trading crypto has never been this easy with Bitcoins Compass.

The following six steps will help you minimize your risk exposure when trading bitcoin:

Defend Against Counterparty Risk

Despite some of the largest percentage increases, cryptocurrency markets still have issues, and significant counterparty risk is associated with exchanges. Numerous cryptocurrency exchanges have experienced hacks and financial losses. Because Bitcoin transactions are irrevocable, entrusting your private keys to exchange might be disastrous.

As cryptocurrency traders, we can take measures to decrease counterparty risk but not eliminate it significantly.

• Do not keep coins on an exchange when trade is not taking place.
• Only use 20–30% of your portfolio for trading.
• Spread your currencies among several exchangers.
• Investigate the exchange to make sure it has a decent reputation.

Exchange Quality for Quantity

Overtrading traders typically squander the most time and money. Choosing quality above quantity is the secret to successful trading. Swing trading performs best when there are significant trends, whereas automatic scalping performs better when the markets are calm.

You must first ascertain your preferred trading approach and the ideal market conditions to find great transactions.

Have a Plan of Exit

On the charts, note important support and resistance levels, and plan your transactions. Set your targets for taking profits after calculating the risk-to-benefit ratio. 

To protect yourself if the markets move against you, you should also be sure to set stop orders. Just remember that stops aren’t always reliable when the market moves too quickly, and slippage could result in a poor fill.

Avoid Using Too Much Leverage

Traders frequently use margin since it expands the order size and gives them the freedom to go long or short. However, if you utilize excessive leverage, your trades won’t have enough time to develop, and you risk losing all of your principal money when forced to liquidate a position.

Simply though some exchanges offer leverage of up to x100, a move against you of even 1% can completely wipe out your account. x3 is a more sensible way to use leverage. This will enable you to enhance your profits while providing a large enough safety net to eliminate a losing trade. This rule’s lone exemption would be scalping on shorter time frames during choppy markets. Less leverage is preferred as long as you hold your transaction.

Prevent Hype

A trader’s two biggest foes are afraid of losing money and anxiety. If you get too greedy, you can wind up purchasing tops. If you panic sells, you might be able to cash out at the bottom of a dump. Half the struggle is being able to control your emotions and remain impartial.

Get in early and sell at a profit when the frenzy is at its height. When euphoria is at its height, the markets typically enter their distribution phase, and a downward trend could follow. The media frequently arrives late to the party and reports on trends after the markets have become inflated.

Hedging

You can hedge your bets if you are unsure of the direction you believe the asset will move. You are said to be hedging your positions when you use a primary trade in the way you anticipate the market to move and a secondary trade in the opposite direction. Whether the asset’s value increases or decreases, hedging will save you from losing money. Going long is a strategy in which you decide to buy a cryptocurrency today at current pricing and sell it at a later time because you believe its value will rise. Going short, on the other hand, is a technique where you commit to selling a coin at the current price at a specific point in the future if you believe its value will decrease.

Conclusion

Everything has advantages and disadvantages. One should do homework before choosing what is best for them, rather than mindlessly following the trend. Research different risk management strategies while investing in cryptocurrency to prevent future disasters. Things are unclear and volatile at this point, and they could make you extremely wealthy or impoverished!