Risks always exist in all fields, so how to control them and limit losses?
Introduce
No matter in any field, the existence of undesirable problems is inevitable. Entering the Crypto market with the desire to create better returns than in other markets, you also need to understand that they also have a lot of risks hidden deep inside.
However, every problem has a solution and minimizes the consequences that they bring to us. In this article, I will guide you through 5 essential methods to proactively manage risk.
Risk management solutions
Of course, all management methods are not guaranteed 100% effective and help you avoid all risks in this harsh financial market. However, when you have specific skills to limit them, you will reduce your passivity in the investment process.
Here are the general methods; in addition to Crypto, you can apply them to other areas of life.
Limit exposure to activities that cause fomo
Sometimes doing nothing, i.e., not being exposed to FOMO activity, can also lower your risk level.
For example, you constantly join people showing winning orders on the forums, this is purely you and everyone sharing the win, but when you stop trading, others continue. Show off their pictures.
Fomo creates a negative incentive for traders. Make you continue to trade even if you don’t have any careful planning. Good or bad, a one-time result will affect how you sell later.
Surely you’ve heard people tell the story of 2017 when the crypto market was in its craziest days. Many people have changed their lives thanks to FOMO, but the number of “peak swings” is not uncommon when buying ETH at $ 1400 / 1Eth or XRP for $ 3; after more than three years and nearly four years, the price of BTC broke. The old peak and ETH, XRP, is still “far away from the country.”
That is to say; when the market is in a situation you cannot predict or have no clear plan, do nothing to preserve what you have. You may miss out on small profits and avoid considerable risks in this dangerous market.
Accept the risk
Accepting and accepting risks is when you think: risk is an integral part of trading. This will help you control your actions well; if you have a loss, it is entirely normal, directed, and going according to your plan. The risk of that loss is even still in your plan.
Trading is a vast psychological battle, so no matter how great you are, you will still be just a human with thoughts, thoughts and a 100% winning probability is impossible.
If you are a day trader, it is normal to have 5-7 trades, so let’s say you lose two trades and give up because you want to win 100%. This is not possible; you can only accept the risk, but you still make a profit in the end. Look at the results, but the loss process is sure to exist.
This is even more important in the Crypto market; unlike in other financial markets, the market at each moment often follows a particular trend. For example, in 2017, you can see the flourishing development of ICOs; the end of 2019 to 2020 is the strong development of decentralized finance (DEFI).
Share the risk
In trading, you are the individual making the trade, but in the process, you will be constantly in contact with other traders. It would be best to share ways to prevent and control your risks to everyone.
This will not work in theory, but when you enthusiastically share with traders, more experienced traders will share with you what they went through. Sometimes it is an excellent lesson to have a plan to prevent them.
Transfer risk to a trusted place
It has nothing to do with it, and there’s no way to transfer the risk to any one place. The answer is yes:
For margin traders using leverage, when achieving a certain profit level, you should deduct part of them to make an insurance fund in case of risk. Of course, they should only be used when you need to, and this money is spent sensibly and carefully.
As for individuals who invest long-term, in addition to accumulating a backup profit, you can also look to projects that provide insurance services.
You need to spend a small amount of money, and assuming the market suddenly drops sharply, like in March 2020, you will be compensated at a specific rate. They are the same as buying life insurance for yourself in real life.
Prevent and minimize losses
Of course, while preparing for the risk, it is essential to minimize the damage it causes because eliminating it all is almost impossible.
You would not expect that the entire market sell-off caused the price of BTC to drop to over $3500 in March 2020. Even to prevent further decline, some exchanges have closed, suspending trading – something that has never happened before.
Because Crypto has a reasonably extensive fluctuation range compared to other traditional markets such as forex and stocks, … when trading here, you will encounter many unexpected situations requiring a plan to minimize losses. You cannot sit idly by and wait for the money in your pocket to gradually run out without taking any action.
When the ETH price peaked at $1400/1ETH but dropped sharply, you might have bought a lot of ETH with all your money. If you lose this money, your life will be highly affected. ETH price goes to $1000, and you feel you can’t take any more losses.
All you need to do is sell that ETH and recover part of your capital. You will suffer losses, but they are no more than just sitting there and watching the price decrease.
Conclude
Risks will always exist in any industry other than Crypto, they will take a lot of your opportunities, but if you try harder, you can minimize and control them. In Crypto, risks exist even more because the options they bring are not few. Our job is to find a way to live in harmony with them.
