Essential Risk Management Principles
Position Sizing
Never invest more than you can afford to lose. Common guidelines:
- No single position > 10% of portfolio
- Total crypto allocation based on risk tolerance
- Emergency fund separate from investments
Stop-Loss Orders
Predetermine exit points to limit losses:
- Set stop-loss at 10-20% below entry
- Adjust based on volatility
- Honor your stops without emotion
Risk Categories
Market Risk
Overall market movements affecting all assets
Specific Risk
Issues with individual projects or tokens
Liquidity Risk
Difficulty buying/selling at desired prices
Technical Risk
Smart contract bugs, exchange hacks
Mitigation Strategies
- Diversification: Spread risk across assets
- Research: Understand what you invest in
- Cold Storage: Secure large holdings offline
- Regular Reviews: Monitor and adjust positions
The 1% Rule
Never risk more than 1% of portfolio on a single trade:
- $10,000 portfolio = $100 max loss per trade
- Adjust position size accordingly
Conclusion
Proper risk management is the difference between long-term success and financial disaster in cryptocurrency investing.
