In this context, fluctuations which appear in the given cryptocurrency imply the process of trading as generating high revenues, in addition to being high-risk. In relation to trading and so that the trader be in a position to minimize them loses hence the profits will be improved risk management is another aspect of trading. Therefore, this article mainly focuses and elaborates the crucial risk management strategies on the trader in Bitcoins with real-life examples in certain parts of the article.
Understanding Bitcoin Volatility
Bitcoin has a highly important characteristic of exhibiting
a high volatility due to many factors that may include the following: It is
considering buying and selling of gourmet feelings, new rules for the markets,
technological developments, and transformations of gross economic materials.
Categorized below are the significant forces that affect the movement of a
market where investing is in consideration: Listed below are the major forces
that influence the flow of a market where they are thinking of investing in:
Key Factors Influencing Bitcoin Volatility
1. Market
Sentiment: This goes to show that events that occurs in the news and the
perception people have towards the certain affairs are able to put steep and
aggressive pressure to the prices.
2. Regulatory News:
This is why an award from governments or financial authorities can cause
variations of the Bitcoin rates.
3. Technological
Changes: When there is a division and split in the computing list of
Bitcoin, there are options which they hit resulting to confusion and
fluctuation.
4. Economic Trends:
The following are areas of Bitcoins that are influenced with reference to the
global economy as well as the share market behavior; __currency values.
Risk Management Techniques for Bitcoin Traders
1. Diversification
Diversification is a move that takes place on many assets
that shall assist in matters related to risk management. In this viewpoint, if
one is trading on Bitcoins, he or she should diversify the risks by investing
on other products that are associated with Bitcoin or any other
cryptocurrencies, stocks, bonds and commodities etc. since it can be useful in
minimizing or averting losses when the prices of Bitcoins reduce in the
concerned market area.
Example: The
remaining 60 percent should ideally be in coins that are not Bitcoin anymore,
gold and new-born industries like Ethereum or technology shares if the people
who want to own 1 percent of the world’s bitcoin intend to invest.
2. Setting Stop-Loss Orders
A stop order is a direction the traders give to a certain
stock so it will trade at a specific value, which will then sell the asset when
it reaches such a value. The efficiency of this technique is described in the
system that lets you reduce your losses based on the knowledge that this
technique will assist you to exit the trade before the market turns even more
against you.
Actionable Insight:
It is recommended that you place a stop at a level below the entry point;
although placing the stop loss $ ten percent below the entry helps the trade to
have some margin.
3. Position Sizing
Position sizing on the other hand can be explained as the
process of establishing the correct value that should be puts on each trade.
Position sizing is all about the management of risk and most of the other
associated risks are contained so as to minimize the effects when one single
entry in the market is severely hit.
Example: When
trading from your trading account, ensure that in the case you have $10,000,
you are trading with not more than 2-3% of the total capital amount meaning
trading with $200-$300 on any singular trade.
4. Hedging
Hedging is therefore the act of an individual walking to
another type of instrument which fundamentally gives him the opposite position
with which he will be in a position to minimize the effect of an unfavorable
price move. Other products which traders may apply to hedge this Bitcoin risk
may comprise, the futures or the option on the Bitcoin.
Actionable Insight:
The second is insurance whereby one can use a put option to protect the many
bitcoins that one may own in case the prices drop.
5. Regularly Reviewing and Adjusting Strategies
Crypto trading market cannot be said to be stagnant
therefore the traders need to ensure that they consider the aspect of
evaluation and alteration. From the trading plan the trader is able to
ascertain the result and the environment in the market once in a while.
Example:
Routinely initiate a monthly check and balance in your trading activities
identifying where to look for better and improvement of the result.
Advanced Risk Management Techniques
1. Using Technical Analysis
Technical analysis is understood as an evaluation of charts
of price as well as volumes in order to make a forecast of price of the
security in future. These are the moving averages, RSI as well as Bollinger
Bands to be used as exit and entry signal.
Actionable Insight:
Subsequently, it is succeeded by A multiple indicator approach that supports
trends for better operational trading.
2. Keeping Up with Market News
This is why it is useful to familiarize itself routinely
with the information regarding the existence and tendencies in the sphere of
cryptocurrencies. Special attention should be made to filter the information by
credible media; it is necessary to go to forums, websites, and regularly read
the newsletters.
Actionable Insight:
To track news pertinent to bitcoins go to google alert and type the
notification.
Conclusion
It is crucial to understand the management risks of the
flying of Bitcoin since it is associated with many volatilities as follows.
This is so because; when trading the chances for better performances are got
through; diversification, stop loss order, position sizing, hedging and always
reviewing the steps taken. Understand the technical and analytical programs
like technical analysis and be aware of the events regarding the markets of
today. Consequently, we can state that the risk management in the sphere of
trading Bitcoins is relatively successful and provides certain measures with nice
profits.