CRYPTO RISK MANAGEMENT

The first two thirds of June have been interesting to say the least.

During these times I have had the privilege to meet and discuss the Crypto market conditions in New York City with some of the best traders of the world.

Contrary to what pop Culture indicates, they do not have a YouTube channel, drive the same rental Lambo from a Shop in Bird Rd, Miami or talk more like a Digital Marketing parson rather than a Finance professional.

If you are hopping to see motivational quotes or “Be your own Boss” stuff, you can stop reading now.

In this article I would like to share with you some of the pearls of wisdom that I was able to gather from them.

Trading Crypto currencies can be certainly a very lucrative endeavor, however as pretty much everything in Finance, you will only be rewarded if you take the required level of risk (remember no Risk no reward), but at the same time are able to Manager and contain it to a level that will allow you to survive the aggressive movements that can go against you more often than not.

In that light, I would suggest that for every hour that you spend learning trading techniques such as candle and figure formation, moving averages, RSI, Bollinger bands and Fibonacci sequences, you must invest at least three hours mastering Risk Management strategies.

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Terms like position sizing, Value at Risk, Maximum drawback, Sortino and Sharpe Ratios are to be part of your day-to-day life if you are serious about making crypto trading a way of living instead of a way of dying (financially at least).

And this is true since no day passes without having a meeting with an experienced investor where the question is not “What is the Fund return?” But “What is the Sharpe Ratio?”, because to be fair, if the Sharpe Ratio of your operation is under 1.0, you are not trading or investing, you are just gambling.

Also, there is the Topic of leverage or over Leverage. When you are trading highly volatile assets such as Bitcoin and the rest of the cryptos, increasing leverage is usually not a very good idea unless you are either a true Risk management professional or work for an organization with a sophisticated Risk management Department providing you guidance, support, and policy limits.

We can read in the articles everyday telling stories about a large DeFi protocol which is at the Verge of Margin Calls that will drive them into insolvency, just because they are over leverage in their operations. So, what makes you think that this situation won’t happen to you? If you are not careful, the Market is ready to step in and humble you very badly with the lesson of your life.

The good news is that, you don’t really need Leverage to obtain above risk adjusted profits when you are dealing with the fasting growing assets class at this point of time.

I am not here to scare you, quite the opposite, I want you to grow and be successful in this wonderful industry. (Crypto). That’s why I am sharing a few topics you need to be careful with in order to “Survive, to Trade another day!”.

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