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Risk management profiles

Just as important as a high quality signal strategy, is a good risk management system. A good strategy can be a losing strategy if managed poorly and a poor strategy could be profitable if managed excellently. In this section we dive deeper into different approaches of mitigating losing positions, advantages and disadvantages, chart examples and how to set it up in Cryptohopper. Want an even deeper dive? Check out our HopperCoach tool to test your hopper template with key settings!

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Stop-Loss / DCA Hybrid

Stop-Loss / DCA Hybrid
Description

Our favorite! Combine best of both worlds. Sometimes referred to as 'safety trade' instead of DCA. This method combines a fast DCA setting that roughly equals the trade target, with a stop-loss roughly 2x the DCA threshold. Where Classic stop-loss is prone to getting shaken out but market volatility, this method smooths out short-term volatility as it doubles down on the next buy order to increase the chance of selling at a profit. As the position doubles down, the target and stop-loss are adjusted. However, downside risk is ultimately limited as bags can not be formed in the long run. Typically 1-3 safety trades are used.

Advantages

- Maintain liquidity without having to use much back-up funds.
- Relatively high initial exposure, increasing potential profitability.
- Proven most effective in backtesting in the long run.

Disadvantages

- If a stop-loss is anyway triggered after deploying DCA, this multiplies your loss too.

Chart example

With each buy, the average buy-in price is lower and thus a smaller move is needed to get a trade profitable. Notice how stop-loss targets and trade targets are adjusted accordingly with each buy.

With each buy, the average buy-in price is lower and thus a smaller move is needed to get a trade profitable. Notice how stop-loss targets and trade targets are adjusted accordingly with each buy.

Best matching trading styles

Strategies are typically built around a risk-management principle and trading style. View the box(es) to the right for the best matching trading styles and strategies to this risk-management principle. 

Day Trading
Day Trading
Day Trading

More entries within market swings, targeting smaller trades for higher frequency and lower holding times. Emphasis on shorter timeframes.

View Strategy
PROFIT TURBINE
Bounce Scalping
Bounce Scalping
Bounce Scalping

Attempts to trade support levels, find bottoms and trades market bounces in a downtrend. Lower frequency, and higher risk.

View Strategy
SCALP HUNTER
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Diversified risk management

There is not one single best method for risk management, and what is best ultimately this comes down to your profile as a trader. However, in all cases, diversification is an extra layer of a smooth and strategic trading system. Just as it is wise to spread your investmens in multiple assets, it is strategic to not be reliant on just one risk-management profile.

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For example, DCA Doubling would require a lot of liquidity (backup funds). Cryptohopper config pools can be used to separate for example a small pool with more trusted assets with DCA doubling, whereas a majority of coins is traded with stop-losses. This ensures that there in a market downturn, there will be enough liquidity to double down on your long-term holds. 

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