Risk Management in Crypto
Systematic approach to risk management — position sizing, diversification, hedging.
Risk management is the difference between long-term success and catastrophic failure — the most important skill in trading.
Basic rules:
1. Risk max 1-2% of portfolio per trade • $10,000 portfolio → max $100-200 per trade • Even 10 consecutive losses → -20% (survivable)
2. Never everything in one asset • Max 20-30% in one altcoin • Max 50-60% in crypto total (vs. fiat/stablecoin)
3. Position sizing formula • Size = (Portfolio × % risk) / (Entry − Stop) • Adjust to stop loss, not the reverse
4. Correlation • Altcoins are highly correlated • "Diversification" within crypto isn't real diversification
5. Hedging • Short BTC perp while holding spot = delta neutral • Put options on BTC for downside protection • Stablecoin allocation = natural hedge
Psychological aspects:
Portfolio level risk:
Robert Carver rule: