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Risk management profiles

Just as important as a high quality signal strategy, is a good risk management system. A good strategy can be a losing strategy if managed poorly and a poor strategy could be profitable if managed excellently. In this section we dive deeper into different approaches of mitigating losing positions, advantages and disadvantages, chart examples and how to set it up in Cryptohopper. Want an even deeper dive? Check out our HopperCoach tool to test your hopper template with key settings!

DCA Classic

DCA Classic
Description

Dollar cost averaging (DCA) is a classic investment strategy where an investor divides their total investment amount into smaller, regular contributions over a period of time. This strategy reduces the risk of buying assets at a high price by averaging the cost of the assets over time and has a long time horizon. Traditionally, this strategy is strictly periodic and disregard TA. However in our strategies TA is used to pinpoint low buy-in opportunities and allocate havier during oversold markets. This is particularly powerful on cooling, consolidating markets which are also referred to as 'accumulation'. This is achieved in cryptohopper by checking the 'auto-merge' box in the baseconfig. Alternatively, leaving auto-merge unchecked and allowing many open positions agaisnt the same coin without DCA, which allows to automatically 'ladder out' of an asset the same way that was laddered in. This method increases exposure per buy with '1X' per buy. For example, after 10 buy signals,

Advantages

- Spreading exposure.
- Reducing portfolio volatility.
- Automated investing.

Disadvantages

- Ultimately reliant on asset performance.
- Positions are built slowly and can be in loss for a longer period of time.
- Unlimited downside. Choose your assets well!

Chart example

When having plenty of backup funds, DCA can be used to increase your position size and lower average buy in costs. However, trades may become very long, and in severe bear markets your positions may suffer deep drawdowns, especially with miscalculated liquidity.

When having plenty of backup funds, DCA can be used to increase your position size and lower average buy in costs. However, trades may become very long, and in severe bear markets your positions may suffer deep drawdowns, especially with miscalculated liquidity.

Best matching trading styles

Strategies are typically built around a risk-management principle and trading style. View the box(es) to the right for the best matching trading styles and strategies to this risk-management principle. 

Position Trading
Position Trading
Position Trading

Building positions over extended periods of time in oversold markets, buying dips and adding to your position. Few signals during uptrends. Emphasis on large timeframes. Lower risk.

ACCUMULATION
Swing Trading
Swing Trading
Swing Trading

Attempts to buy swing lows and sell at swing highs, typically using momentum indicators. Emphasis on medium-large timeframes. Balanced trading style

WAVE GAINER
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Diversified risk management

There is not one single best method for risk management, and what is best ultimately this comes down to your profile as a trader. However, in all cases, diversification is an extra layer of a smooth and strategic trading system. Just as it is wise to spread your investmens in multiple assets, it is strategic to not be reliant on just one risk-management profile.

For example, DCA Doubling would require a lot of liquidity (backup funds). Cryptohopper config pools can be used to separate for example a small pool with more trusted assets with DCA doubling, whereas a majority of coins is traded with stop-losses. This ensures that there in a market downturn, there will be enough liquidity to double down on your long-term holds. 

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