Steemit Crypto Academy Season 3 Week 8 - Risk Management in Trading

Introduction

Its a known fact in life to every adventure or step taken in life proper calculated risk should be taken into consideration this will help one to minimize or reduce the risk of getting exposed to damages in every aspect of life.

These life principles are as well applicable in the trading space a trader needs to take proper risk management and apply them to their trading strategy this will help such traders reduce the risk of losing funds while trading.

Below I will be explaining some risk management terminologies

Buy Stop

While trading traders take advantage of market volatility of price movement buy stop order are orders placed by traders above the market price of a moving cryptocurrency.

The buy order will only get triggered when the price of such particular currency reaches the placed target a trader put.

Take for instance a particular coin is in an uptrend and the buying pressure has been increasing rapidly a trader will now choose to look beyond the current price of that coin and move further ahead of the current price and place a buy stop once the buy stop is triggered the trader's position will start reading on the other hand if the buy stop did not trigger the order will remain pending.

Below is a chart showing the market price of BTC I will be placing a buy stop above the current price.

Importantly buy Stop orders can only be placed in a bullish market trend above the current price of a coin

Sell Stop

The Sell Stop orders are placed below the current price of the bearish market price movement.

Here it can also be seen when a market is very volatile in this type of market there is a selling pressure and the seller are the major dominant controlling the market a trader can take advantage of such market by placing a trade below these downtrend moves in anticipation of the price to go more dip below the current price of the bear market.

The below chart also shows and illustrations of a Sell Stop order.

Important point here is the market is in a downtrend move and at such a trader will place his trade below the downtrend current price.

Buy Limit

A buy limit order in the market is also a pending order which is expected to get triggered when the current price moves below a trader's expectations.

In this type of order, the market is in a bullish move which is the buyers are in charge of the market here sometimes if a trader is expecting a trend reversal in price a buy limit can also be placed below the current price of a moving trend.

Below is a chart showing the buy limit order.

In buy limit order the price is yet to be filled and a market retest is likely to happen also traders take advantage of the support line to place a buy limit in an uptrend moving market price

Sell Limit

The sell limit order can be placed or found above a resistance line in this type of trader there has been a selling pressure which indicates a bearish market trend.

It is also a pending order which is yet to be filled here in anticipation of market reversal or a retest a trader would place a sell order above the current market price and wait patiently for the price to hit.

The chart below shows a simple illustration

If the price hit and starts moving in the downward direction then a trader is on the winning side on the other hand if the price hit and continue to move upward then a trade is likely invalid.

Trailing Stop Loss

Trailing Stop loss is an important risk management strategy tool used by traders to minimize the risk of losing funds.

In this case for a trader to place a trailing stop loss his placed order or trading position must have been triggered and also the trade is moving in the trader's favor.

trading position must be filled opened, triggered price must be in traders favor

If these two above conditions are met depending on a bull/bear market a trader can now place a certain percentage at which the trailing stop loss will be moving.

1:1 risk percentage can be fixed with a 10% moving average as the trade price increases the trailing stop loss order will keep increasing.

Margin Call

In trading **margin calls are triggered when a trending market price moves against traders, opened position.

In this type of trade, a trade position is already opened due to market volatility there is a price reverse which turned out against the trader opened position when the margin call triggers it means the trader's fund is about getting liquidity therefore it means a trader should add more fund to his asset to avoid total liquidation of assets

To practically demonstrate risk management as a trader certain factors must have been mastered by such trader which includes.

Market psychology, fundamental and technical analysis, and finally the risk management strategies

Market psychology in trading

Here, a trader mastering how to control emotions while trading the market is an important factor that must be well understood by such trader in this phase a trader must set out rules and regulations that will govern and guide him while conducting or executing any trade he must know how to control fear, greed, and anxiety, set out rules on how and when to exit a trade.

Fundamental and technical analysis in trading

Here, a trader needs to understand that trading isn't just a game of luck but the practical application of trading tools and indicators will be required for such a trader to stay active in the market, also before a trader will buy or hold a coin he must have to make research about such coin before investing or buying.

Ths risk management

On successfully achieving or mastering the above conditions a trader can now implement a trading risk management tool if a trader has initial startup capital of $100 applying a 1:1 trading strategy is important which means in all trade he must not be greedy to input high capital that will put his fund at high risk.

A stop loss and take profit order must always be watch out for in any trade position executed by the trader take profit and stop loss should be properly applied.

Observing all the above-mentioned conditions will help a trader minimize the risk of losing funds while trading.

The below chart shows a practical illustrated trade using a moving average indicator which will help in navigating which direction the coin will head in the next few hours.

The chart above is taken from my binance trading application a 4-hour timeframe of BAL/USDT chart from the chart we can observe the trend is on an uptrend market the moving average is also indicating an uptrend move.
I placed a buy limit below the uptrend current price which means I'm waiting for a price retest if my target is hit then I'm in. I will also place my stop loss and take a profit order once my order is placed.

Conclusion

Trading with proper risk management is very important for trading as it can be used to reduce the risk of losing funds applying proper risk management with trading indicators implies the trader is not just trading base on sentiment but applying proper trading rules and strategies to take advantage of market trend.