Crypto Futures — What is Good Risk Management?
2 min readApr 29, 2021
- Keep size small. When you oversize, you not only risk losing a lot on that particular trade, but should you lose you will then be in a bad mindset or even financial situation and give up the ability to trade better opportunities in the near future. So oversizing can cost you both money and opportunities later.
- Focus on lucky entries. Be patient with your entries. When you get mediocre to bad entries, you are giving up your ability to exit the trade for a small loss while not getting chopped / wicked out. Also, don’t be greedy on exits. Lucky entries, likely exits.
- Don’t be married to the trade. Once you get stopped out or take a loss, forget it. If the trade reverses on you, who cares. There is a tendency to feel additional fomo over a trade you “almost” won. But that is an illusion. No individual trade matters more than the next. If you take a loss, you are just as likely (or more) to win the next trade, than forcing yourself back into the same trade for fear of it going your way AFTER you exited. Move on.
- Set daily / weekly loss limits. And WRITE IT DOWN. Put it on a sticky note on your monitor. Don’t just think “I will follow these rules” without taking it seriously. In the heat of the trade it is easy to give up on risk management and tell yourself “If I can just get out of THIS trade I’ll be responsible NEXT TIME.” No. Daily / weekly loss limits IN WRITING are a game changer. They force you to limit your worst case risk.
- Don’t chase. Who cares if you miss out on a good trade. If you missed the entry, move on. You only need a few good trades to be a profitable trader. Don’t settle for mediocre trades.
- Avoid monster losses. Cut your losers early enough that you are ALWAYS in control. Once a single trade spirals, you lose the ability to make good decisions. Never let yourself get there. Cut the loser and walk away.