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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!

Stop-Loss Classic

Stop-Loss Classic
Description

The most straight-forward method to manage downside risk. A classic stop-loss is a risk management strategy where a trader sets a certain price at which they will automatically sell their assets in order to limit their potential losses. Be careful not to set a stop-loss too tight as organic price dynamics and volatility could knock out your trade even if profit target is eventually met. Additionally, make sure to balance this out with the potential reward.

Advantages

- Can prevent larger losses
- Allows higher initial exposure.
- No backup funds (liquidity) needed.

Disadvantages

- Can easily be triggered by market volatility
- May not always execute at the desired price
- Not suited for strategies that attempt to find market bottoms or reversals.

Chart example

Stop-losses put a line in the sand and limit the maximum loss, which helps protect against market reversals. However, short spikes in volatility might knock out your trade unnessecarily.

Stop-losses put a line in the sand and limit the maximum loss, which helps protect against market reversals. However, short spikes in volatility might knock out your trade unnessecarily.

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. 

Day Trading
Day Trading
Day Trading

More entries within market swings, targeting smaller trades for higher frequency and lower holding times. Emphasis on shorter timeframes.

PROFIT TURBINE
Trend Scalping
Trend Scalping
Trend Scalping

Targets very short trades yielding small profits. Focus on small time frames, typically using momentum indicators on small timeframes, with trend + volatility conformation indicators on larger timeframes.

BULL POWER
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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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