#1: Do Your Own Research (DYOR)
DYOR is a crucial risk-control method for any investor. In the Internet age, it is less difficult than ever to behavior your personal research. Before making an investment in a token, coin, project, or different asset, you ought to do your due diligence. It’s key that you test crucial records approximately a project, inclusive of its white paper, tokenomics, partnerships, roadmap, community, and different fundamentals.
However, incorrect information spreads quickly, and everybody can publish their opinions online as facts. When carrying out research, recall where you are getting your records and the context in which it is presented. Shilling is commonplace, and tasks or traders can spread false, biased, or promotional information as though it has been honest and factual.
#2: Consider the 1% rule
The 1% rule is an easy risk control method that includes no longer risking greater than 1% of your general capital on funding or trade. If you have $10,000 to make investments and need to stick to the 1% rule, there are some methods to do so. One could be to purchase $1,000 really well worth of bitcoin (BTC) and set a stop-loss or stop-limit order to sell at $9,900. Here, the maximum loss will be 100$ you’ll reduce your losses by only 1% of your general funding capital.
You can also purchase 100$ of ether (ETH) without putting in a stop-loss order, as you’ll handiest lose most of 1% of your general capital if the rate of ETH had been to drop to 0. The 1% rule would not have an effect on the size of your investments but on the quantity, you’re inclined to risk on funding. The Crypto market is always volatile, therefor 1% rule is important for traders. It may be easy to get greedy, and a few buyers may also position an excessive amount into one funding or even go through heavy losses watching for their good fortune to turn.
#3: Setting stop-loss and take-profit points
In a stop-loss order, you can define the predefined price for closing the trade once the price has reached that point. It’s always placed below the current price to reduce further loss while the market is down. A take-profit order works the alternative way, putting a trigger point at which you need to get profit from your trade and book your profit.
Stop-loss and take-profit orders assist you to control your risk in a few ways. First, they may be getup earlier and can be completed automatically. There’s no want to be had 24/7, and your pre-set orders can be brought about if costs are specifically volatile. This additionally lets you set sensible limits for the losses and profit you may take.
It’s good to set those limits earlier instead of withinside the warmth of the moment. While it may be odd to think about take-earnings orders as a part of risk management, you should not neglect that the longer you wait to take profit, the better the threat the marketplace should fall once more whilst expecting an extra upside.
#4: Diversify and hedge
Diversifying your portfolio is one of the famous and essential gear to minimize your investment risk. Here we will not invest heavily in one single asset. The portfolio will be diversified through various assets. For instance, you can keep loads of special coins and tokens, in addition, to providing liquidity and loans. Hedging is a barely greater approach to gain profits or minimize losses with the aid of using buying another asset. Usually, those assets are inversely correlated. Diversification may be a form of the hedge, however, possibly the famous example is futures.
The crypto world is highly volatile. However, there are nevertheless possibilities to diversify inside this asset magnificence and use hedging possibilities. Diversification in crypto is a whole lot more critical than in greater conventional financial markets with less volatility.
#5: Have an exit strategy ready
Having an exit method is an easy however powerful approach for minimizing the risk of heavy losses. By sticking to the plan, you may take earnings or reduce losses at a pre-decided point. Even if prices are downtrend, it is easy to need to preserve going while making profits or to position an excessive amount of faith in a cryptocurrency. Getting stuck up in hype, maximalism, or a buying and selling network also can cloud your decision-making.
One manner of effectively enforcing an exit strategy is to apply for limit orders. You can set them to auto-trigger at your limit price, whether or not you need to take income or set the minimum loss.