Many beginners focus entirely on "how much money can I make?" while professional traders focus on "how much money could I lose?". Risk management is the only shield you have against market volatility.
1. The 1% Rule
This is a standard rule among professionals. If you have a $1,000 account, you should not risk losing more than $10 (1%) on a single trade. This implies using appropriate position sizing and stop-loss orders.
2. The Importance of Stop-Loss Orders
A Stop-Loss is an automatic order to close a trade if the price moves against you. Trading without a stop-loss is like driving a car without brakes. It prevents a small manageable loss from turning into a disastrous one.
3. Risk to Reward Ratio
Before entering a trade, analyze the potential reward versus the risk. A healthy ratio is usually 1:2 or higher. This means if you are risking $50, your potential profit target should be at least $100.
4. Diversification
Don't put all your eggs in one basket. If you trade crypto, consider looking at stocks or commodities as well. If one market crashes, your entire portfolio won't suffer as much.
Final Thoughts
You cannot control the market, but you can control your risk. Capital preservation is the key to longevity in this business.
Disclaimer: This content is for informational purposes. Past performance is not indicative of future results.