Crypto Risk Management
Crypto volatility demands even stricter risk management than traditional markets.
Why Crypto Needs Special Risk Rules
Extreme Volatility
- 20-50% corrections are normal in bull markets
- 80-90% drawdowns in bear markets
- Flash crashes happen
- 24/7 means no safe close
Portfolio Allocation
The Barbell Strategy
- 60-70%: Large caps (BTC, ETH)
- 20-30%: Mid caps (SOL, AVAX, LINK)
- 5-10%: Small caps / high risk
- Always keep stablecoin reserves
Position Sizing
- 1-2% risk per trade
- Reduce size for smaller cap coins
- Account for higher volatility
- Never go all-in on one coin
Stop Loss Strategies
Technical Stops
- Below key support levels
- Under recent swing lows
- Give room for crypto volatility
- Wider than forex stops
Percentage-Based Stops
- BTC: 5-8% from entry
- Large alts: 8-12% from entry
- Small alts: 15-20% from entry
- Adjust based on volatility
Protecting Against Specific Risks
Exchange Risk
- Never keep all funds on one exchange
- Use cold storage for long-term holds
- Verify exchange reserves
Smart Contract Risk
- Use audited protocols only
- Start with small amounts
- Diversify across protocols
Regulatory Risk
- Stay informed on regulations
- Use compliant exchanges
- Diversify across jurisdictions
Bear Market Survival
- Reduce exposure early (do not hold hope)
- Move to stablecoins when trend breaks
- Keep dry powder for accumulation
- Average into positions over months
- Focus on quality projects
Key Rules
- Never invest more than you can lose
- Take profits on the way up
- Use dollar cost averaging
- Diversify properly
- Have a written plan and follow it