Sunday, February 25, 2024


The issue of risk management in investment is an extremely important area that any investor or transaction needs to understand. Even if you have a high win rate strategy without risk management and following your allocation discipline, the end result will be a failure. I would like to share a little bit about my personal experience as well as the knowledge I have learned how to better manage risk ## **1. Determine your level of loss** Determine how much % you risk for your total portfolio (including holding, trading, generally for your whole, it can be 20 or 50% depending on your tolerance level per person’s risk) However, I would recommend 30% maximum for my total account because it is a psychological threshold of human (I round according to Fibonanci milestones). If you lose more than 30% of your account, then you have started to feel depressed, afraid and the most powerful thing is bitterness and desire to remove the gauze quickly. The intensity of these psychological levels will be stronger the more you let your portfolio drop, losing 50% then 70%…. At that time, if you do not stop, the results will sink deeper and eventually lose everything. The picture below is an example, the more you lose, the harder it is to recover your initial capital. Therefore, set a threshold for your loss (maybe 30% or so), and when your total account loss hits this threshold, I will stop trading and withdraw from the market for a while, consider Review your strategy and playing method, find out why you have lost in the past. And when you have calmed down and found a new direction to solve it, then you will return to the market to continue fighting. That is the first step to managing risk and living with the market in the long run. ## **2. Determining the risk of each trade** The financial market is a probabilistic problem and retail investors like us are the ones who solve that problem to make profits in many different ways, using indicators , fundamental analysis, money flow, fomo, for short-term, medium-term, long-term… And of course it is undeniable that everything will have its probability, there is no one method. can be 100% sure in the market. So in order to have a positive PS system method like the idol Low Jho mentioned, we also need to clearly determine the volume and % of risk for each of our orders. If you put too much capital on one position, this can put your portfolio at risk of being drastically reduced to the point of no return. Therefore, you need to prepare in advance and consider how much you can risk on your total account per order. This will depend on the winning percentage of your trading system and your position. But if you are just starting out and are gradually building a trading system, it is recommended to risk only 1% of your account per order. For example, if the total capital is 10,000 dollars for trading, then each trade should only lose up to $100. The goal is to gain a lot of experience, keep a diary to track the probability of your current trading system. And remember your initial loss threshold, eg 30%, losing continuously, losing 3k dollars, then don’t be bitter but raise the volume to remove the gauze, but have to get out of the market and reflect again for a while. time, before putting more money into the next game. And when you have a lot of experience with the market and have a trading system with a large probability of winning, then consider starting to gradually increase the % risk of each order. But if so, will it limit the number of commands we can go? With so few orders, is it possible to win a financial game? It is true that raising the risk will limit the number of orders we trade or invest, but it will increase the quality of that trade or investment. We will have more time to dedicate ourselves to that order and process it when it is timely, reducing the pressure of managing multiple orders. The management of a portfolio of only 10 projects will be different from when you invest more than a few dozen projects, where it takes time to manage and handle them all. But the best for me personally, the faster the capital turnover, the less risk you should take (because you have to enter many orders to make a profit), for example, if you hit a large leveraged future, you can only risk 2-3. % account, while hitting spot hold low cap should only risk up to 5-10% of the account. It’s important to do something about it, if you lose it, it won’t affect your psychology much. ## **Determining trading volume** A reference method to help you determine the total volume you should play is CPR model (Capital – Postion – Risk) * Position = Capital/Risk (P = C/R ) Take a simple example: That trade order if you want to long ETH at $1500, but if it drops to $1300 then the order is broken, must stoploss → Risk each ETH is $200 Your trade capital is $10,000 and you just want to risk each trade is 2% of your total capital → C = $200 → your total volume of a trade (P) will = C/R = 200/200 = 1 ETH Long ETH order at $1500 , you should only go to vol 1 ETH (vol 15% of the account). Leverage can be combined but the total volume must still = 1 ETH. For example, if you play x2, use your initial capital 0.5 ETH. If you hit a stoploss, you will lose $200 = 2% of your total capital. When Tp, it must = R x times, risk $200u but must win $400 or $600 depending on the conditions If that is not possible then the order must be canceled from the beginning. This can be applied similarly to holding because holding is essentially the same as trading, only we are cuttingloss = -100% of the account and dropping take profit to infinity. For example, if you want to hold BNB for a long time, and you only dare to risk 2% of your total capital, then just buy a long-term spot hold of $200. Lose it, but the future uptrend must be x5 x10 for example. Hopefully through the article below, you can have more information and perspective to better manage risk in your investment process. Risk management is a big deal and you will need to evaluate it monthly to be able to go long with the market.

Source: Collector



Please enter your comment!
Please enter your name here

Most Popular

Recent Comments