Risk management profiles
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.
- Increased odds of selling a position in profit.
- Smooths out short-term volatility.
- Does not realize a loss.
- Deeper drawdowns for open positions (unrealized loss).
- Risk of bag formation.
- Low initial exposure, which leads to relative underperformance if markets do well.
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.