What are Major Types of Bitcoin Risks?

Bitcoin Risk Management Strategy

In any business, so as to make profit one must learn how to manage risks. To make profits in bitcoin trading you need to learn about the various bitcoin money management strategies discussed on this learn bitcoin trading tutorial web-site.

When it comes to online bitcoin trading, the risks to be managed are potential losses. Using bitcoin risk management rules will not only protect your bitcoin account but also make you profitable in long run.

What's DrawDown in BTCUSD Trading?

As bitcoin traders the number one risk in bitcoin trading is referred to as draw down - this is the amount of money you have lost in your cryptocurrency trading account on a single btcusd trade transaction.

If you have $10,000 bitcoin capital and you make a loss in a single bitcoin trade transaction of $500, then your bitcoin draw down is $500 divided by $10,000 which is 5% draw down.

What's Maximum Draw Down?

This is the total amount of money you have lost in your cryptocurrency trading account before you begin making profitable cryptocurrency trades. For examples if you have $10,000 bitcoin trading capital & make 5 consecutive losing bitcoin trades with a total of $1,500 loss before making 10 winning cryptocurrency trades with a total of $4,000 profit. Then the bitcoin drawdown is $1,500 divided by $10,000, which is 15% maximum draw down.

DrawDown is $442.82 (4.4%)

Maximum DrawDown is $1,499.39 (13.56 %)

To learn how to generate the above reports using MT4 bitcoin trading platform: Generate Bitcoin Trading Reports on MT4 Tutorial - Trading with Tools of Bitcoin Risk Management - Bitcoin Trading Risk Management Calculation

BTCUSD Risk Management Strategy

The example illustrated below shows the difference between risking a small percentage of your bitcoin capital compared to risking a higher percentage. Good Bitcoin Trading Risk Management Strategy principles requires you as an investor not to risk more than 2% of your total bitcoin account equity on any one single bitcoin trade transaction.

Bitcoin Percent Risk Technique

2% & 10% Cryptocurrency Money Management Rule - Bitcoin Risk Management Strategy - The Bitcoin Trading Risk Management Guide

There is a big difference between risking 2% of your bitcoin account equity compared to risking 10% of your equity on a single btcusd trade transaction.

If you happened to go through a losing streak & lost only 20 cryptocurrency trades in a row, you would have gone from beginning bitcoin account balance of $50,000 to having only $6,750 left in your cryptocurrency account if you risked 10% on each bitcoin trade transaction. You would have lost over 87.50% of your bitcoin trading account equity.

However, if you risked only 2 % you would have still had $34,055 in your bitcoin account which is only a 32 % loss of your total bitcoin account equity. This is why it is best to use the 2% risk management strategy in cryptocurrency trading.

Difference between risking 2 % & 10 % on a single bitcoin trade transaction is that if you risked 2% you would still have $34,055 in your bitcoin trading account after 20 losing trades.

However, if you risked 10 % you would only have $32,805 in your bitcoin trading account after only 5 losing trade transactions that is less than what you would have in your cryptocurrency account if you risked only 2% of your cryptocurrency trading account and lost all 20 btcusd trade transactions.

The point is you want to setup your Bitcoin Trading Risk Management Strategy rules so that when you do have a loss making period, you will still have enough bitcoin trading capital to trade next time.

If you lost 87.5% of your bitcoin capital you would have to make 640 % profit to get back to breakeven.

As compared to if you lost 32 % of your bitcoin trading capital you would have to make 47% profit to get back to breakeven. To compare it with the bitcoin examples 47 % is much easier to break-even than 640 % is.

The trading chart below shows what percentage you would have to make so that you get back to breakeven if you were to lose a certain percentage of your bitcoin trading capital.

Concept of Break Even - Trading with Tools of Bitcoin Risk Management

Cryptocurrency Account Equity & Break Even - What are Major Types of Bitcoin Risks? - Trading with Tools of Bitcoin Risk Management

At 50% bitcoin drawdown, one would have to earn 100 % on their invested bitcoin trading capital - a feat accomplished by less than 5% of all bitcoin traders worldwide - just to break-even on a bitcoin account with a 50% loss.

At 80% bitcoin draw down, one must quadruple their bitcoin trading equity just to bring it back to its original equity. This is what is called to "breakeven" - which means - get back to your original bitcoin trading account balance that you deposited.

The more money you lose, the harder it is to make it back to your original bitcoin trading account size.

This is why as a trader you should do everything you can to PROTECT your bitcoin trading account equity. Do not accept to lose more than 2% of your bitcoin account equity on any 1 single bitcoin trade transaction.

Bitcoin Money management is about only risking a small percent of your bitcoin capital in each bitcoin trade transaction so that you can survive your losing streaks and avoid a big draw down on your cryptocurrency trading account.

In bitcoin trading, traders use stop loss cryptocurrency orders which are put in order to minimize bitcoin losses. Controlling risks in bitcoin trading involves putting a crypto stop loss bitcoin order after placing an new bitcoin trade order.

Effective Bitcoin Risk Management

Effective bitcoin trading risk management requires controlling all risks in trading & a trader should create a money management bitcoin system and a money management bitcoin plan. To be in bitcoin trading or any other business you must make decisions involving some risk. All bitcoin trading factors should be interpreted to keep risk to a minimum & use the above bitcoin money management tips on this article - Trading with Tools of Bitcoin Risk Management.

Ask yourself? Some Tips

1. Can the risks to your bitcoin investing activities be identified, what forms do they take? and are these clearly understood and planned for? All the bitcoin risks should be taken care of in your bitcoin trading plan.

2. Do you grade the trading risks encountered by you when bitcoin trading in a structured way? - Do you have a bitcoin trading plan? have you read about this learn bitcoin trading topic which is thoroughly covered discussed here on this learn bitcoin trading web site.

3. Do you know maximum potential trading risk of each exposure for each trade which you place?

4. Are trading decisions made on the basis of reliable & timely market information and based on bitcoin trading strategy or not? Have you read about bitcoin trading systems here on this learn bitcoin website tutorial lessons.

5. Are the bitcoin risks large in relation to the turnover of your invested bitcoin capital and what impact could they have on your bitcoin profits margins & your bitcoin account margin requirements?

6. Over what trading time periods do the trading risks of your bitcoin trading activities exist? - Do you hold bitcoin trade positions long-term or short-term? what type of bitcoin trader are you?

7. Are the exposures in trading a one off or they are recurring?

8. Do you know enough about the ways in which your bitcoin trading risks can be reduced or hedged & what it would cost in terms of profit if you did not include these stipulated measures to reduce potential loss, & what impact would it make to any up side of your bitcoin profit?

9. Have your bitcoin money management guidelines been adequately formulated, to ensure that you make and keep your bitcoin trading profits.