First Rule of Trading: Risk-management. Our backtesting tool for your trading strategies

As we believe here at Coinrule, the first and most important starting point in a trading strategy is to put in place some risk management rules. No matter how confident you are about your strategy, you must evaluate how much you could potentially gain and how much you could lose so that you will be able to fully assess the so-called reward/risk ratio.

Imagine one of your friends would suggest starting a trade where you could gain 100 USD if it works well but with equal probability you could also lose 1000 USD if it fails. What would you do? I bet that wouldn’t sound so good to you! In this simple example we just made an assessment of the reward/risk ratio of a trade, in this case, that would equal to only 0.1 (100/1000).

The higher this value will be the more attractive the trade will be, on a risk-adjusted basis. Our ultimate objective is to always get into trades that will have the highest possible reward/risk ratio. That said, this is not so easy to be found, simply because if a trade will feature such an attractive reward/risk profile, many traders will be interested and so its attractiveness will disappear over time. Never forget: RISK-FREE TRADES DON’T EXIST!

“Not taking risks one doesn't understand is often the best form of risk…