Efficient Capital Management Method for Crypto Trading

One of the most important reasons why people often lose money while trading cryptocurrency is crypto capital management.

In fact, in the market, the number of people with knowledge and experience in crypto capital management is not much. If you are not equipped with the basic knowledge of capital management methods for cryptocurrency trading such as crypto capital management formulas, crypto capital management strategy, then you lose money is only a matter of time.

In order to prevent new traders from falling in the wrong direction, in this article I will detail and fully describe effective capital management methods for crypto trading.

Why Need To Manage Capital in Cryptocurrency Trading?

To put it simply and understandably, if a trader wants to survive for a long time in the market and does not want to be eliminated due to excessive losses, then everyone must be able to learn crypto capital management skills. This is a prerequisite that beginners need to know because if you cannot preserve capital, people will no longer have the opportunity to continue trading coin.

There would be many benefits if people know how to manage capital for crypto trading, it helps everyone’s account increase gradually over time.

The capital management methods for cryptocurrency trading are not too many and not too difficult to implement, but the results of them are extremely large.

Basic Coin Capital Management Formula – The 1% Rule

1% Rule: Traders must not risk more than 1% of their current account per transaction.

The 1% risk is the amount of loss from your account (balance) per transaction, not the total amount of transactions (lot).

For example: If you have $1,000 in your account, the risk limit you must incur in each transaction is $10 which is equivalent to 1% of your balance (including transaction fees).

Many traders thought 1% is too low for each order, it’s okay if they want to burn their account as quickly as possible. The goal of capital management is to stay alive for as long as possible, and with this 1% rule, we have successfully accomplished that goal. The important thing, the 1% rule helps you avoid heavy losses.

If people think 1% is too low then go up to 1.5% or 2% and never go beyond 2%.

There is 1 formula for calculating order size based on the following rule:

Number of coins to buy/ sell = 1% of current account / (entry price – stop loss price)

For example, you want to buy BTC/USD pair at entry 5400, stop loss 5300. You have 1000 USD in your account, so the amount of BTC you can buy is:

1% x 1000 / (5400-5300) = 0.1 BTC

Basic Coin Capital Management Strategy – Dollar Cost Averaging (DCA)

Dollar cost averaging (DCA) is a tip that many traders share. It means that when entering an order that the price goes against the order, we will enter another same order, with the hope that when the price reverses, it will save the first loss order, even profit.

The problem is that traders must know when the price will reverse, and if we would not predict the time to place more orders, it can easily lead to losing orders, burning accounts.

If everyone has defined the purpose of trading coin, not holding coins, never use DCA. It is the path to convert defeat into victory, but also the fastest route leading to heavy losses.

Please apply the above basic knowledge about Crypto trading capital mangement so that when trading cryptocurrency, you won’t lose more money.