In cryptocurrency trading, there are often unpredictable large price fluctuations. When a major market move occurs, it presents a good profit opportunity but also poses significant risks. Learning good position management methods can help investors reduce risks to a certain extent.
To master position control is a long-term practice, taking steady steps one at a time!
First, do not trade with a heavy position. The funds you use should not exceed 30% of your principal. Extra funds can help you effectively cope with risks when prices are unfavorable. Do not expect a single heavy position to make you rich; this is a very dangerous trading method.
Second, set stop-losses. Experienced traders will have their own trading habits. From a long-term perspective, setting take-profit and stop-loss for each trade is a good habit. For example, setting a profit-loss ratio of 2:1, closing the position when making a profit of $100, and also closing the position when losing $50.
Third, learn to manage positions effectively.
Below are two commonly used position management methods:
Pyramid position management method:
The pyramid position management method is a trend-following strategy that is typically executed after confirming the price trend. It is suitable for markets that are continuously rising or continuously falling. Investors initially invest a larger position (e.g., 30%), and as the asset price moves favorably, they increase positions in decreasing ratios (e.g., 20%, 10%), forming a pyramid structure that is narrow at the top and wide at the bottom.
By holding light positions at high prices and heavy positions at low prices, you can reduce holding costs. This allows you to follow the trend to maintain profits while avoiding the risk of establishing heavy positions at high prices.
This strategy is suitable for one-sided markets but requires high judgment of the trend. It needs to be combined with technical indicators, dynamic take-profit methods, etc., to maximize profits.
Rectangular position management method:
The rectangular position management method is an investment strategy that builds positions in batches at a fixed ratio. Investors equally divide their funds (e.g., 20% each time), and when the asset price you bought moves in the opposite direction, you open positions again with the same amount at each fixed ratio (for example, when it drops by 5%).
By adding positions in equal amounts to spread costs, you can diversify the risk of single investments and avoid buying heavily at high prices.
This strategy is suitable for uncertain trends or wide fluctuations in the market. Compared to pyramid-type positions, it is more robust, but the profit speed is slower. It requires combining trend judgment to timely take profit and stop loss, and strict execution is necessary to prevent emotional trading.
Of course, a good position management system also includes limits on risk for individual trades, overall position limits, stop-loss mechanisms, diversified investments, profit redistribution, etc. However, its core is to expand profits or reduce losses in the constantly changing profit or loss, thereby achieving a stable investment process.