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