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5 Tips for Bitcoin Trading Risk Management in 2019

Risk management is a crucial element of successful bitcoin trading. Regardless of the trade setup you have, nothing’s guaranteed. Everyone takes the occasional hit, but an effective risk management strategy will help keep you in the game for much longer. In this guide, you’ll learn a few ways to reduce exposure during bitcoin trading.

Minimize Counterparty Risk

Although the cryptocurrency market has high-percentage gains, it has its issues, and every exchange comes with a certain degree of third-party risk. Transactions cannot be reversed, and trusting the wrong exchange with your keys may be financially disastrous. As a trader with, it’s impossible to eliminate all risks, but you can take steps to reduce it.

  • Don’t leave bitcoin on the exchange when you’re not actively trading
  • Trade with just 20-30% of your total portfolio
  • Diversify holdings between several exchanges
  • Learn about the exchange and verify its reputation

Focus on Quality Rather Than Quantity

Those who over-trade the market usually end up wasting the most money and time. When trading bitcoin, it’s better to choose quality than quantity. Not all market conditions are right for every strategy. For instance, automated scalping works best in a stable market, while swing trading is most effective in strong trends. To minimize risk, you’ll have to find the right combination of trading style and market conditions.

Form an Exit Plan

Find crucial resistance and support levels on the trading charts and plan your trades in advance. Determine a transaction’s risk-to-reward ratio and set a target for the taking of profits. During a strong trend, you may add to your position, or by scaling out, you can lock in a profit. It’s good to set a stop order in case of adverse market movement, but keep in mind that stops don’t always work when prices move too quickly.

Don’t Use Too Much Leverage

Bitcoin traders frequently utilize margin because it allows for greater flexibility while increasing order size. With that said, if you use excessive leverage, your trades won’t have enough breathing room, and you may lose the entire principal during a forced liquidation event.

For instance, some exchanges offer x100 leverage, but a 1% adverse move may wipe out your account. A saner and safer approach is x3 leverage, which allows you to increase gains while providing a buffer zone by which a bad trade can be exited. The lone exception to the rule would be the scalping of smaller timeframes during a volatile market. Here, the longer a trade is held, the less leverage should be used.

Don’t Buy Into the Hype

Fear of missing out and the fear of great loss are a bitcoin trader’s fiercest enemies. If one gets too greedy, they may end up with tops. During a panic sell, they may end up cashing out their position at the bottom of a coin dump. Objectivity and emotional management are half the trader’s battle.

When bitcoin hype is at its highest, it means that the market will reach the distribution phase and a downtrend is coming. Media outlets are typically late to mention it, reporting on these trends once the market has been greatly exaggerated. Beat the crowds and sell into a position of strength when the hype is at its maximum.


Bitcoin is a relatively new trading and investment vehicle, but like all other commodities, trading has its risks. By following these tips, those risks can be greatly minimized.


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