Money Management in Crypto Trading
Hi All Bybiters!
Today I will share some insights on Money Management!
In Cryptocurrency trading, Money Management is important. This includes how many size contract is in each trading position, decision on how much leverage we use and the distance between the entry price (open position) and our Stop Loss (SL) and profit target, as well as how many maximum trading positions we will open at the same time. And the good news is Bybit can help you to manage your money management with provide features TP/SL and Trailing Stop before open position trading in our Platform.
Market can certainly provide profit, but not forever our position will profit. It could be that we will lose once or twice before profit again. It is also likely that we will experience a losing streak without knowing when to profit again.
We can make sure our trading plan will always win or profitable. In this case we must ready to take risk and preparing our money management to control that.
The use of large Stop Loss (SL) can limit losses, but what if there is a loss in a row? Surely the amount of losses will be more and more difficult. To turn things around is very difficult. The profit gained for months finally loss overnight. Our psychology is also increasingly dropping, which ultimately impacts on the quality of our trading.
Therefore, we can start looking for ways to deal with loss risk by applying the right money management. For example, we can look for a system that results in a 1:1 Risk vs Reward Ratio. The bigger the comparison, the better. Usually traders prefer to use Risk:Reward 1:3, where it only takes 33% win to Break Even.
So! Let’s break it down!
How to manage your money with a good Risk Reward!
First thing first! Determine the maximum amount of loss you can receive. We take the example of a risk of 2% per trade. If there is a loss 3 times in a row, then the account only breaks 6%. If the 4th trade makes a profit, then with RR 1:3 will erase all of our losses.
RISK: 1
REWARD: 3
Don’t use more than 5% from your deposit for take position, it will be high risk for your trade.
Let’s say you have $100 in a trading account, with a risk of 2% per trade, meaning that each trading position must have a maximum Stop Loss equivalent to $2 and a target profit equivalent to $6.
THE MONEY MANAGEMENT CALCULATION
DEPOSIT: $100
RISK: 2%
TAKE PROFIT: $6
STOP LOSS: $2
(Win (TP) 2 times — Loss (SL) 4 times) = TP $6 + $6 — SL $2 + $2 + $2 + $2
(Win (TP) 2 times — Loss (SL) 4 times) = TP $12 — SL $8 = $4
The important thing is not profit takes precedence, but risk measurement is what needs to take precedence. Profit will follow by itself. By applying Risk:Reward 1:3 for example, we can adjust the take profit level which is 3x greater than the stop loss distance size for each order.
The implementation of RR sometimes make limit your profit opportunities. However, the key to successful in Cryptocurrency trading is discipline and planned your trading system with a good risk reward.
There are many quick ways to make money from $100 to $50,000 in just a few months, but what happens later is, our psychology is not ready to accept reality when it comes to the drop. That is, with such a high winning percentage, money can also loss in a quick time or worse, when the account hit liquidation.
Enjoy the trading, keeping safe!
Happy Trading with Bybit!
Don’t forget to join Bybit Official Telegram and Local Communities!
English (Global Group): https://t.me/BybitEnglish
French: https://t.me/BybitFrench
Hebrew: https://t.me/BybitHebrew
Indian: https://t.me/BybitIndian
Indonesian: https://t.me/BybitIndonesian
Japanese: https://t.me/BybitJapanese
Korean: https://t.me/BybitKorean
Russian: https://t.me/BybitRussian
Spanish: https://t.me/BybitSpanish
Turkish: https://t.me/BybitTurkish
Vietnamese: https://t.me/BybitVietnamese
