Bitcoin Trading Money Management Styles and Methods in Bitcoin Trading

The best way to practice successful money management in Bitcoin trading is for a Bitcoin trader to keep losses lower than the profits they make when trading. This is called risk to reward ratio.

High Risk: Reward Ratio

This risk: reward ratio method is used to increase the profitability of an investment strategy by trading only when you have the potential to make more than 3 times what you are risking when opening a Bitcoin trade.

If you invest using a high risk reward ratio of 3:1 or more, you significantly increase your chances of becoming profitable in the long run when trading Bitcoin cryptocurrency online. The chart below shows you how this concept works:

In the first example, you can see that even if you only won 50% of your BTCUSD trade transactions, you would still make a profit of $10,000. Even if your win rate went lower to about 30% you would still end up profitable as shown on the second example above.

Just remember that whenever you have a good risk: reward ratio, your chances of being profitable are much greater even if your trading system has a lower win percentage.

Never use a risk: reward ratio where you can lose more money on one trade than you plan to make. It does not make sense to risk 1,000 dollars in order to make only 100 dollars.

Because you have to win 10 times more to make 1,000 dollars back even if you lost only 1 bitcoin trade.

If you ONLY lose once you have to give back all your profits from the other ten winning trades.

This type of investment strategy makes no sense and you will lose in the long term, guaranteed!

Percentage Risk Method

The percentage risk method is a method where you risk the same percentage of your account balance per every transaction.

Percentage risk based method specifies that there will be a certain percentage of your account equity balance that is at risk per trade. To calculate the percent per every trade transaction, you need to know two things, the percentage risk that you've chosen and lot size of an open trade order so as to calculate where to put the stop loss order. Since the percent is known, we shall use it to calculate the lot size of the order to be placed in the market; this is known as position size.

Example

If you have an account balance of $50,000 in your account and risk percent is 2%

Then 2 % is equal to $1,000

If three investors buy BTCUSD and the first one is using 20,000 points stop loss, second one is using 40,000 points stop, third one is using 50,000 points stop, and their position size will be:

Example 1:

Stop loss = 20,000 points

Risk percent = 2 % = $1,000

How many Bitcoin contracts to open based on How many lots to open where 20,000 points = $1,000

1 Point of Bitcoin movement = $0.001

1,000 Points Bitcoin movement = $1

20,000 Points Bitcoin movement = $20

$1,000 stop loss divided by $20 = 50 Bitcoins (50 bitcoin contracts)

Position size = 50 bitcoin contracts

Position size is 50 Bitcoins (for 50 Bitcoin lots 1 point movement =$ 0.05) ($0.05x20,000=$1,000)

Stop loss = 20,000 points

Simplified: if your risk is 2% or equal to $1,000, and your stop loss setting level is $20, then you will open 50 bitcoin lots - 50 bitcoins multiplied by $20 stop is equal to $1000 point stop loss.

Example 2:

Stop loss = 40,000 points

Risk percent = 2 % = $1,000

How many Bitcoin contracts to open based on How many lots to open where 40,000 points = $1,000

1 Point of Bitcoin movement = $0.001

1,000 Points Bitcoin movement = $1

40,000 Points Bitcoin movement = $40

$1,000 stop loss divided by $40 = 25 Bitcoins (25 bitcoin contracts)

Position size = 25 bitcoin contracts

Position size is 25 Bitcoins (for 25 Bitcoin lots 1 point movement =$ 0.0025) ($0.025x40,000=$1,000)

Stop loss = 40,000 points

Simplified: if your risk is 2% or equal to $1,000, and your stop loss setting level is $40, then you will open 25 bitcoin lots - 25 bitcoins multiplied by $40 stop is equal to $1000 point stop loss.

Example 2:

Stop loss = 50,000 points

Risk percent = 2 % = $1,000

How many Bitcoin contracts to open based on How many lots to open where 50,000 points = $1,000

1 Point of Bitcoin movement = $0.001

1,000 Points Bitcoin movement = $1

50,000 Points Bitcoin movement = $50

$1,000 stop loss divided by $50 = 20 Bitcoins (20 bitcoin contracts)

Position size = 20 bitcoin contracts

Position size is 20 Bitcoins (for 20 Bitcoin lots 1 point movement =$ 0.0020) ($0.020x50,000=$1,000)

Stop loss = 50,000 points

Simplified: if your risk is 2% or equal to $1,000, and your stop loss setting level is $50, then you will open 20 bitcoin lots - 20 bitcoins multiplied by $50 stop is equal to $1000 point stop loss.

Example: If a trader with $50,000 wants to calculate annual income from his strategy

Annual income: If your trading system has a win ratio of 70% and your risk reward is 3:1, and your stop loss is 20,000 points and take profit is 60,000 points and every month you make 100 trade transactions trading standard lots, then your maximum annual income will be about:

For 1 standard BTCUSD lot profit per 1 point is $0.001

100 transactions*12 months = 1,200 transactions

Wins and Profit

70% win: 70% of 1,200 = 840 profitable transactions

840 transactions * 60000 points = 50,400,000 points

50,400,000 points = $50,400

Losses

30% losses: 30% of 1200 = 360 losing transactions

360 transactions * 20000 points = 7,200,000 points

7,200,000 points = $7,200

Net Profit = $50,400 - $7,200 = $43,200

Income: $43,200

The above is just an example of the amount you will make that will depend on the risk: reward ratio of your Bitcoin trading system along with its win percentage ratio.

Other factors to consider include:

Maximum Number of Open Position - A final point to consider is the maximum number of open positions - that is the maximum number of trades that you want to be in at any one time. This is another factor to decide when managing your account capital.

If for example, you chose a 2% risk management method per trade, you may also say chose to be in a maximum of 5 trade positions at any one given time - each position at risk of 2%. If 3 of those positions close at a loss on the same day, then you would have an 6% decrease in your account balance that day.

But if the other 2 trades make profit and your risk: reward ratio is 3:1 - then the 2 winning trades will make you 12% (3:1 risk reward means if you risk 2% your trade has a chance of making 6% - therefore, two winning trades at 6% equals 12% gain)

Therefore, 12% gain for the day subtract 6% loss for the day equal a total of 6% gain for the day.

This is why you should learn and understand money management rules, the rules of risk reward ratio and how to calculate where to set stop losses based on the Bitcoin lots you open per single trade.

Invest Sufficient Capital One of the worst mistakes that Bitcoin traders can make is attempting to open a trading account without sufficient trading capital.

The trader with limited capital will be a worried investor, always looking to minimize losses beyond the point of realistic trading, but will also be frequently taken out of the transaction before realizing any success out of their trading strategy.

Exercise Discipline Discipline is the most important thing one can master to become profitable when trading Bitcoin online. Discipline is the ability to plan your work and work your plan when trading Bitcoin online.

It is the ability to give a Bitcoin trade the time to develop without hastily taking yourself out of the market simply because you are uncomfortable with risk. Discipline is also the ability to continue to stick to your Bitcoin trading plan even after you have suffered losses. Do your best to follow the rules of your trading plan and cultivate the level of discipline required to be profitable when trading Bitcoin online.

Managing Account Capital Basics

Money management is the foundation of any Bitcoin trading system as it helps investors to get profit when transacting in the online Bitcoin trading market. It is especially important when transacting in the leveraged online Bitcoin cryptocurrency market.

If you want to invest successfully in the online Bitcoin market you should realize that it is very important to have an effective trading strategy of money management because you will be using leverage to place your trading orders online.

The difference between average profits and losses should be strictly calculated, the profits on average should be more than the losses on average, otherwise trading Bitcoin will not yield any profits. In this case an investor has to formulate their own trading rules; success of each person depends on their individual traits. Therefore, every investor makes his own trading strategy and formulates their own money management rules, based on the above guidelines.

When you are placing your BTCUSD orders put your stop loss orders in order to avoid huge losses. Stop loss orders can also be used to lock in profit.

Consider the chance to get profit against loss as 3:1 - this risk: reward ratio should be favorable more on the profit side. Considering these rules and guidelines, you can use them to improve profitability of your trading strategy and try to develop your own strategy that will possibly give you good profits.