Why risk management is so important ?

[Lasky366]

Let's dive in n take a look Why risk management is so important ?


If you enter a $100 trade and lose 15%, you’re down to $85.

If you make 15% profit on your next trade, now you have $97.75

It's harder to recover losses than to preserve funds. Don't think how much you can make on a trade. Think of how much you can lose on a trade. Risk-Reward ratio is key.

Also win % does not make a successful trader, but strategy and risk management do.

For example:

One trader has a 60% win rate but his portfolio is down 6% using a 2/1 risk-reward.

Another trader has a 30% win rate but his portfolio is up 12% using a 1/5 risk-reward.


So, it’s necessary to have very strict rules on risk management that help you to always preserve the capital and not to take crazy risks.

[1715237156]

1715237156

[sana54210]

One trader has a 60% win rate but his portfolio is down 6% using a 2/1 risk-reward.

Another trader has a 30% win rate but his portfolio is up 12% using a 1/5 risk-reward.


So, it’s necessary to have very strict rules on risk management that help you to always preserve the capital and not to take crazy risks.

It makes lots of sense. Most traders never bother about how much they could risk on their every trade as they are usually focus on how much profits they may make. Simply if you are able to make more profits than your losses then you can escape!

In other words, cut your losses earlier. Or choose the trade which has (comparatively) low stop-loss levels and strictly follow the habit of exiting the trades at stop-loss.

Risk management is all about: Your rough estimation about your profits and loses before entering into actual trades.

You may have low winning rates but if you keep your losses at low then your winning trades may compensate your losses in other trades. It is possible only when you follow risk management. I guess only traders who bother about preventing losses may able to follow these kinds of management principles more consciously. But I am a trader who forgets all my own discipline rules and may think about my own set of rules only when my trade turns negative. This happened to me at least 25 times still I am unable to control myself when I get a signal for a new trade.

[Jating]

But it is easier said that done. I don't think that traders here are going to be strict, maybe there are days that they will just give up and consider it a lost already. I think what we traders should practice is some kind of "control aggressiveness". Yes, you could do some risk management, but in the end, you might go on the opposite side. What I mean is that don't predict your every movement. I know this idea sounds crazy, but it had work for me. I'm not against risk management control, but for me it's better to get out of your comfort zone from time to time.

[Oilacris]

But it is easier said that done. I don't think that traders here are going to be strict, maybe there are days that they will just give up and consider it a lost already. I think what we traders should practice is some kind of "control aggressiveness". Yes, you could do some risk management, but in the end, you might go on the opposite side. What I mean is that don't predict your every movement. I know this idea sounds crazy, but it had work for me. I'm not against risk management control, but for me it's better to get out of your comfort zone from time to time.

You are right! Saying up things about risk-reward matters is easy but actually the hardest thing when you are already on the actual situation.
Most of noob investors would really have this kind of common mistake on where they dont plan it well when it comes on how much they would
need to risk for them to earn but rather they do go all in once they do wanted to do without even minding that they can blow up their
capital in a short span of time with such behavior.Well, mistakes would be the best teacher and if you do realize it up then thats the
time you would consider risk-reward ration when you do already have that idea in mind.

[Wexnident]

Risk management is in the end just being prepared tbh. Even if you take the risk of going all in, it can still be called risk management as long as you actually had a plan and a reason for doing that instead of just going yolo. If you were the standard trader ofc you'd create a risk management plan for yourself. But some traders could go on without one since their plans itself are somehow preventing the worst that could happen, that is based on their plans. Risk management in the end just limits your losses while profiting slowly and is quite nice, but on the other hand, taking risks is also one option as long as you have a plan to cut your losses when it exceeds a certain margin.

[maydna]

I think only some of the traders who will think about risk management. But I believe every trader will have their reason to prevent the risk become bigger, and perhaps, they will use so many methods to recover they're lost if somehow they are lost in trading. But many traders trade using big money, and they tend to go all-in of their cash in one price. We can see that when they use all-in of the capital, they will have a big chance to get a trap in the market, and that can make them wait for a long time to sell that coin.

Risk management is how we can manage the money that we will use in trading, and how we deal with the risk, so our loss will not be bigger. I admitted that it is difficult, but if we don't try, we will never learn how to prevent the risk.

[Gozie51]

Capital management is what is simply called risk management, this is for newbie to understand.
If we are not taking emotion away, we are going to make wrong decision about our capital. Always focusing on profit is a step in wrong direction.

[Assface16678]

Risk management is one of the problems in the world of trading because not all the time is you can make a lot of earnings and profit to your trades. The first place, trading is having a higher chance of risk if you are just common people who do not have enough capability and knowledge about the movement of the coin and trading you with your money cannot survive into the trading still always make sure you have enough learnings before deep diving your risk. Some of the people making double wages when they lose on their games which is not advisable it is riskier too because not all the time double wages are effective. Still, it is your decision If you will gonna do this just to earn back your loss.

[Vispilio]

Good question, the recent volatility spikes during the Corona pandemic have also demonstrated that it's much more likely to incur margin calls and lose your account during high volatility situations.

Therefore, purely from a fiduciary and perspective perspective as well, it makes great sense to always have a slightly long volatility (long gamma / long vega) bias in any portfolio.

[DevilSlayer]

Risk management is what we should focus especially if we want to be consistently earning in the market. Risk management consists of different areas that we should master: first is planning, second is identifying the risk and reward ratio, third is position sizing which is the very important in order to manage the risks very well. Traders are usually focusing on the money that they may earn and not the money that they may lose and that is why when they all in their money in just one trade, they suffer huge losses that takes time in order for them to recover it.

[Harlot]

One trader has a 60% win rate but his portfolio is down 6% using a 2/1 risk-reward.

Another trader has a 30% win rate but his portfolio is up 12% using a 1/5 risk-reward.


So, it’s necessary to have very strict rules on risk management that help you to always preserve the capital and not to take crazy risks.

Is a "win rate" really such a thing in crypto trading? From what I know a win rate is something being used by those odd pickers in gambling but not in trading because there is no such thing as a win rate for a trader since the market is to volatile to guarantee such trader being accurate in the market. Risk management is also barely used in the trading lingo but I believ what you are trying to say when risk management is involved is the cutting of losses of a trader to the bare minimum. In your example where the trader have lost 15% of his capital this can be something mitigated or avoided if the trader react way earlier or has a back up plan/ exit strategy when the target price failed to hold, maybe losing only up to 5%  is what you will be looking for if you are trying to manage your risk.

[fullhdpixel]

That is why we have stop loss and other stuff in trading, so you do not lose too much at all. Plus you are right that when it goes down 50% it required to go up 100% to be back and that is one of the reasons why it is so hard to make money in trading, however you can stop looking at the % it increases or decreases and focus on the price itself, which usually does matter a lot as well.

For example price of one altcoin could be 100 dollars, if it drops to 90 dollars, you can simply expect it to go up to 100 dollars instead of trying to wait for it to go up a bit over 10%, if you wait in % you are going to be disappointed a lot more frequently, just focus on the price and you would be basically expecting it to be what it once was which shows you what it could be.

[carlfebz2]

One trader has a 60% win rate but his portfolio is down 6% using a 2/1 risk-reward.

Another trader has a 30% win rate but his portfolio is up 12% using a 1/5 risk-reward.


So, it’s necessary to have very strict rules on risk management that help you to always preserve the capital and not to take crazy risks.

Is a "win rate" really such a thing in crypto trading? From what I know a win rate is something being used by those odd pickers in gambling but not in trading because there is no such thing as a win rate for a trader since the market is to volatile to guarantee such trader being accurate in the market. Risk management is also barely used in the trading lingo but I believ what you are trying to say when risk management is involved is the cutting of losses of a trader to the bare minimum. In your example where the trader have lost 15% of his capital this can be something mitigated or avoided if the trader react way earlier or has a back up plan/ exit strategy when the target price failed to hold, maybe losing only up to 5%  is what you will be looking for if you are trying to manage your risk.

In talks of chances then it cant really be considered or known but everything would be seen on how you did perform well overall.Also that winning rate might pertain to success rate so it isnt really a serious matter though.Risk management is important because if you dont have this then you are basically doing gambling and not trading.You would really need to set up everything to reduce risk as much as you can even though
losses are inevitable but this can be reduced if you do know on how to set things up.People do normally forget this thing until they've bust out.

[Yamifoud]

The situation seems so harsh and it really changing the mindset of the people when they got lose of their money. And if they couldn't manage and control themselves then have to expect bad decisions comes.
Some people just underestimate the risk in trading because they are brag about focusing on the gains and out of knowing how much they lose in every single mistake they do. Not really they appreciate how was important to have an Effective Risk Management until they realize it. And that was bad since they have to commit mistakes first before they look into its importance.

[Oceat]

The situation seems so harsh and it really changing the mindset of the people when they got lose of their money. And if they couldn't manage and control themselves then have to expect bad decisions comes.
Some people just underestimate the risk in trading because they are brag about focusing on the gains and out of knowing how much they lose in every single mistake they do. Not really they appreciate how was important to have an Effective Risk Management until they realize it. And that was bad since they have to commit mistakes first before they look into its importance.

Well, nobody gets it in the first place so they still have to suffer from their mistake first before learning. And that's what we called an experience, the more we commit experience the more we learn and that's the price of knowledge. It might be a hassle for them but it is quite useful in the future. Even professional traders do make some mistakes too so it's just normal to fail but not necessarily needed to fail always because there's something wrong already about that.

[Mahanton]

The situation seems so harsh and it really changing the mindset of the people when they got lose of their money. And if they couldn't manage and control themselves then have to expect bad decisions comes.
Some people just underestimate the risk in trading because they are brag about focusing on the gains and out of knowing how much they lose in every single mistake they do. Not really they appreciate how was important to have an Effective Risk Management until they realize it. And that was bad since they have to commit mistakes first before they look into its importance.

Well, nobody gets it in the first place so they still have to suffer from their mistake first before learning. And that's what we called an experience, the more we commit experience the more we learn and that's the price of knowledge. It might be a hassle for them but it is quite useful in the future. Even professional traders do make some mistakes too so it's just normal to fail but not necessarily needed to fail always because there's something wrong already about that.

Anyone do start out on being a noob and this is the truth and i agree that mistakes are the stepping stone for you to learn everything or as you gain experience then you would able to know on how things do work.
Managing risk might not be simple but you would able to get it when you already have the knowledge that you have gained on countless trades that you had made.It just matter of learning and this cant be attained overnight
but would take years for you to be that enhanced.Profits will comes next if you do already know on what you are doing.Minimize losses as possible which is the main goal of each trader.

[Dr.Osh]

good advice. however, everything before trading needs to be considered. I have also experienced this when the price of coins goes down, then rises, but the total funds that I have do not return 100%. however, many people are not aware of this and continue to trade. knowing this makes us aware of how to keep making the best decisions in trading to minimize risk.

[wozzek23]

Risk management is very important in everything we do. If you decide to jump into cryptocurrency due to your passion you have for it or because of stories you were told, and without accessing your level of risk, you might just end up losing everything you have. I have seen stories of a lot of people that didn’t manage their money properly and ended up doing the wrong things on cryptocurrency and losing their money. And like I said at first, risk management is important in every level or whatever you’re into.

I also can remember a man who sold everything he had, just to get into cryptocurrency, and another young man that did the same. What if the price should fall through out the year just like in 2018 and you end up losing the money you invested?

[TheUltraElite]

Capital management is what is simply called risk management, this is for newbie to understand.

Capital management is how you manage your capital or your principal amount that you are willing to invest, or how you manage incoming capital with every earning. Risk management is how you diversify your assets and reduce/increase them in terms of their projected losses/gains respectively. All this comes with a lot of predictions and foreseeing of the future economies and technology development as to what asset one should hold or should exit from.

It is not something like sports betting like the OP seems to say, but needs analysis and a lot of willpower to stick to.

[Latviand]

One trader has a 60% win rate but his portfolio is down 6% using a 2/1 risk-reward.

Another trader has a 30% win rate but his portfolio is up 12% using a 1/5 risk-reward.


So, it’s necessary to have very strict rules on risk management that help you to always preserve the capital and not to take crazy risks.

Is a "win rate" really such a thing in crypto trading? From what I know a win rate is something being used by those odd pickers in gambling but not in trading because there is no such thing as a win rate for a trader since the market is to volatile to guarantee such trader being accurate in the market. Risk management is also barely used in the trading lingo but I believ what you are trying to say when risk management is involved is the cutting of losses of a trader to the bare minimum. In your example where the trader have lost 15% of his capital this can be something mitigated or avoided if the trader react way earlier or has a back up plan/ exit strategy when the target price failed to hold, maybe losing only up to 5%  is what you will be looking for if you are trying to manage your risk.

Everyone in trading knows that risk management is necessary to prevent losses that can affect your mental health. We all know that when it comes to money, we should make good decisions and execute strategies carefully so that we do not fail when we are having transactions. Always be mindful and aware of the market because that will serve us your basis and also be patient.

In trading, technical analysis will keep you on track about how market moves and your strategies will based on that, by doing that, you should consider the risk the you will take and minimize it as soon as possible.

Minimizing the risk of getting losses in trading will keep you healthy in you trading career so that you can recover easily the money that you've lost. Avoid having a mindset that YOLO in your trading career, that is not applicable in any circumstances most especially if it involves money and cryptocurrency in the market.