top of page

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 Doubling

DCA Doubling
Description

A more aggressive and strategic version of classic DCA, which in Cryptohopper is simply called 'DCA'. Only increases allocation sizes of losing positions that fall below a certain threshold. Instead of adding 1x per buy, this method doubles (or triples) the open position per buy. This increases the odds of clearing a losing position, but in a failing market will increase your position size exponentially, leading to 'bags'. This requires a lot of back-up funds to maintain its effectivity, and DCA settings should not be too fast to avoid over-allocation in a short period of time.

Advantages

- Increased odds of selling a position in profit.
- Smooths out short-term volatility.
- Does not realize a loss.

Disadvantages

- Deeper drawdowns for open positions (unrealized loss).
- Risk of bag formation.
- Low initial exposure, which leads to relative underperformance if markets do 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. 

Crash Buyer
Crash Buyer
Crash Buyer

Exploits market inefficiency and illiquidity by entering at bottoms after flash-drops and V-shaped market moves. Tends to signal during high volatility.

HAMMER SCOUTS
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
RM portfolio.png
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. 

bottom of page