Risk Management and Trade Criteria– Crypto Academy / S5W7- Homework Post for @reminiscence01

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1. What do you understand by "Risk Management"? What is the importance of risk management in Crypto Trading?.

We all know that crypto market is a highly volatile market. An unskilled trader can easily lose his capital here. So if you want to be a crypto trader, it is very important to acquire good skills in this subject.

To become a skilled trader, one must first have an idea about risk management. Generally, risk management refers to how much risk you can take when you open a trade and how much profit you will get from it.Simply, rick management is your ability to control your losses. Risk management is the strategy that is followed to minimize the losses of a trader. When a prudent person enters the market, he must enter through risk management. He decides where to place his stop loss and where to exit the market. Risk management plays a very important role in avoiding huge losses and generating good profits from the crypto market.

Important of Risk management in Crypto trading

The importance of risk management to a trader is immense. Since the crypto market is highly volatile, a trader is likely to have zero capital if he does not manage the risk properly.

I think risk management is a bit dependent on emotion. If you want to trade in with emotional in market you can never get good results. So you have to control emotion and make proper risk management and minimize big losses.

Another big advantage is that a trader will get confidence from market. At a time when he determine good risk management as well as to reduce

1. Explain the following Risk Management tools and give an illustrative example of each of them.

   a) 1% Rule.

   b) Risk-reward ratio.

c) Stop loss and take profit.

1% Rule.

We can say a good trader when he follow 1% rule in risk management. It play an important role in the trader capital. Generally people do not take more than 1% loss in the every single trade. But some time it can be most 3%.

So we can say when a trader do not take risk more than 1% Its called 1% rule. More than one percent risk can minimize your capital. Let's clear the the answer with example.

Suppose, I have $500 capital. I want to follow 1% rule. In the situation, my risk management will be (500× 1%)= $5. I will face $5 loss in my trade when the market price will go against my prediction.

Risk to Reward Ratio

Risk reward ratio refers that the ratio of loss and profit. Risk reward ratio is very important tool and plays very valuable role in crypto trading. Actually risk reward ratio vary on the skill of trading whose are very skillful trader they may take big risk on the other hand who are newbie trader they should be aware of risk reward ratio. Otherwise, those people will face lot of loses.

We usually know that ideal risk reward ratio is 1:2. Here 1:2 risk reward ratio refers that If we accept $1 loss, If the opportunity come to profit in the time we have to make $2 profit there. We should not trade by our emotion. I think taking good risk reward ratio is one kind of special virtue of a good trader.

Stop loss and Take Profit

Stop loss is a really amusing tool in trading by which a trader can protect his portfolio from big losses. Sometime I say that stop loss is a bless for every trader. Simply stop loss refers that The market predicts when you will open any kind of trade and when the market goes against that prediction it starts to lock so we come out in the market right there as much as you can take the loss. Come out of this place is stop loss.Stop Loss does a great job when there is a sudden market reversal and gives you some relief from the loss.

Take Profit It is very difficult for a trader to sit in the market all the time. If you want to get out of the market at a fixed price, select one of us at a certain point and get out of there. In the situation, take profits are very helpful here. According to the Risk Reward Ratio, the price is determined by taking the price from where you want to exit the market is called take profit.Take profit will only work successfully when the market is up or down according to your predictions.

1. Open a demo account with $100 and place two demo trades on the following;(Original Screenshots on Crypto pair required).

   a) Trend Reversal using Market Structure.

   b) Trend Continuation using Market Structure.

Conclusion

In the case of any type of trade, the risk remains where the risk is, there is profit.I have never seen a business without a risk.I think where the amount of risk is ​​higher there is more chance of profit.So risk can't be afraid to know the system to overcome it.

Cc
@reminiscence01