Crypto Risk Management for Retail Traders

Risk management is the difference between a trader who survives and a trader who gets wiped out.

It's not exciting. It doesn't make you rich overnight. But it keeps you in the game long enough to actually get rich.

The Core Rule: Risk Only What You Can Afford to Lose

This isn't just advice. This is the foundation of everything else.

If you're trading with money you need for rent, food, or emergencies, you're not trading. You're gambling. And gambling always ends badly.

Only trade with money you can afford to lose completely. If you can't afford to lose it, don't trade it.

The 2% Rule

On every single trade, risk maximum 2% of your account.

If you have $10,000, risk maximum $200 per trade.

This seems small. But it's powerful. Here's why:

• You can lose 50 trades in a row and still have $3,000 left
• You can survive bad streaks without getting wiped out
• You can stay in the game long enough to improve

Most traders violate this rule. They risk 10%, 20%, 50% per trade. And then they get wiped out on one bad streak.

Position Sizing

Once you know your risk per trade (2% of account), you can calculate your position size.

Formula:

Position Size = (2% of Account) / (Entry Price - Stop Loss Price)

Example:

• Account: $10,000
• Risk per trade: $200 (2%)
• Entry price: $1.00
• Stop loss: $0.90
• Risk per token: $0.10
• Position size: $200 / $0.10 = 2,000 tokens

This ensures that if you hit your stop loss, you lose exactly $200 (2% of account).

Stop Losses Are Non-Negotiable

A stop loss is a price at which you automatically exit a trade.

Set your stop loss BEFORE you enter the trade. Not after. Not "when it feels right." Before.

If you don't set a stop loss, you're hoping the trade works out. And hope isn't a strategy.

A good stop loss is:

• Below a support level (technical analysis)
• At a price where your thesis is broken
• At a distance that matches your risk tolerance (usually 5-10%)

Profit Targets

A profit target is a price at which you automatically exit with a profit.

Set this BEFORE you enter the trade too.

A good profit target:

• Is above a resistance level
• Gives you a favorable risk-reward ratio (at least 1:2)
• Is realistic for the token and timeframe

Example: If you risk $200 to make $400, that's a 1:2 risk-reward ratio. Good.

Diversification

Don't put all your money in one token. Don't put all your money in one strategy.

A simple approach:

• Never risk more than 2% per trade
• Never have more than 5 open trades at once
• Never have more than 10% of your account in one token

This limits your downside if one trade goes very wrong.

The Drawdown Rule

Track your largest loss from peak to trough. This is called a drawdown.

If you hit a 20% drawdown, stop trading. Take a break. Review your trades. Figure out what went wrong.

This prevents you from trying to "win it back" and digging yourself into a deeper hole.

The Real Benefit

When you follow these rules, something shifts. You stop worrying about individual trades. You know that even if you lose, you're protected.

This confidence lets you make better decisions. You're not desperate. You're not emotional. You're just following your plan.

And that's when you start making real money.