Money management on cryptocurrency market. Part 2

In the first part of the article "Money management on cryptocurrency market", we discussed in details the investment part of your cryptocurrency trading portfolio, how it is formed and adjusted. But crypto investments cannot be called the most exciting part of the whole trading process. Investments are very effective and profitable, but they still do not carry exactly those emotions that you can get in the process of live trading, right at the spot.
If you want to plunge into the world of trading and experience all those feelings while watching the price go in the direction or vice versa, breaking all your predictions into the opposite, then in this part of the article we will look at the most interesting for you - the speculative part of your trading portfolio.

Recall the basic distribution over the entire portfolio: 60% is an investment (cold) wallet and 40% is a speculative (hot) wallet. For simplicity and clarity of calculations, we take the value of our speculative part of the portfolio equal to $1000.
Speculative trading rules

The first rule - never trade with the full amount of your investment funds.
Losses from cryptocurrency trading with $1000 will be much greater than, for example, from $100. The recommended load on a deposit in a single transaction is a maximum of 20% or $200 in our example. Thus, when trading at maximum values, you have the opportunity to open 5 transactions at once, which is also not worth doing. You should always have available funds on a speculative account, at least in order to additionally buy some instrument in the event of its long-term growth or fall in your direction.

Thus, it is recommended to have no more than three simultaneously open positions, and leave everything else reserved.
The second rule is the size of your risk, i.e. those losses that you are willing to incur, and which will not undermine your speculative account, should not exceed 10%.
If you went to a negative profit that exceeds this limit, it means that something is wrong with your strategy, you are acting in a wrong way and you don’t understand something. The only right decision in this situation would be to close all open transactions, if any, and to do a thorough analysis of their failures. The strategy that leads you to such a negative profit is vital to revise and rebuild because such a strategy is fundamentally wrong. Read manuals, ask for advice from other, more successful market participants, sort out the problem, test your redesigned strategy, and only then return to trading, while not forgetting to replenish your speculative account with the amount you lost.

For our example, we will set the maximum percentage of losses equal to 5%, or $50. This means that all the deals that we will open, and the limit we have is three, being unprofitable, should fit into this limit. Setting up the Stop Loss (SL) will allow us to control losses. Further, it all depends on your strategy, in which clear rules should be formed where your SL is set. If your SL strategy should be set at a distance equal to the entire defined risk of 5%, then, in this case, your limit on the number of simultaneously open trades is reduced from three to one. It is very important and you can never neglect this rule.

Short SLs are much more likely to work than long ones, but losing for example 2% of the maximum amount of the transaction, which is only $4, and then finding a more profitable entry point that quickly blocks your loss is much more comfortable and safer than sitting and watching the price go fast in your direction, getting closer and closer getting to your long SL. Also, short SLs protect not only your deposit but also your emotional and mental health. So having made one losing trade for a maximum percentage of losses, you have to leave the market, frustrated, depressed and in a bad mood. By setting short SLs, you have both time and opportunity to cover your losses and close the trading day as a plus. For example, setting SL at 2% you will need to complete as many as 12 losing trades in a row to select an acceptable percentage of losses. It is very difficult to get 12 SLs in a row, even in terms of simple statistics.

Ignoring the SL setup is completely unacceptable. Because you can sit for three, five, eight months with your losing trade and not all traders can withstand such a drawdown. It is very hard both for a deposit and for the emotional component of your trading. Surviving a loss of $4 is easy. Dealing with the loss of $800 is much more difficult. And it becomes psychologically impossible to cope with the fear of the following failures and losses, in general. Do not bring yourself to this state.

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