Financial theory defines risk simply as volatility because it shows the “unreliability” of an investment. But this is not true. Risk is the possibility of losing your capital forever. We will tell you how to trade using risky strategies.
Risky trading is an investment, the result of which is more difficult to predict. It is worth noting that risk is present even in a favorable macro environment.
Andrew Crockett describes this situation remarkably accurately: “The conventional wisdom is that risk increases during recession and decreases during rapid growth. On the contrary, it would be more useful to think that risk increases during a rising market because financial imbalances emerge and manifest themselves during a falling market.”
Trading in a volatile market
Even the most reliable asset will be riskier if taken at the wrong point, and the most “risky” asset will be less likely to bring you losses if you open a position at the right time.
Volatility can come at any time, whether it’s: news, a level breakout, or other technical aspects. In a volatile market, there is very little time to think and a trader must make decisions as quickly as possible.
Therefore, a short-term trader needs to memorize the following rules:
- If opening a position on price pullbacks, buy or sell during weakness (on low volume).
- If on the breakdown of support/resistance levels — buy/sell during strength (with high volume). In this case, the volume from the average should be higher by at least 50%.
- Concentrate on the technical part. Put targets at least 1:5 to risk. If the stop price is hit, exit without hesitation.
- If the asset hits your target quickly — exit 80% of the position. Since in this case there is a possibility that the asset will show a double top/bottom on the chart.
- If the asset approaches your first target slowly — exit 40%.
- Do not cross — remember that you can always re-enter the position. The market will always allow you to make money.
How to make a maximally risky strategy safer?
Many videos, articles, and even the best books for traders often claim that taking a position against yourself is a mistake and can ruin your trading capital. But is this true?
Averaging a position against yourself is a strategy that aims to increase trading volume during an unfavorable situation for the trader.
For example: a trader decides to open a long position in the $100 BTC/USDT pair at 70,000, but due to high volatility the market “swings” in the opposite direction. The trader decides to buy BTC for another $100 at the price of $69,000. In this case, his average purchase price will become $69,496. If the market returns to growth, the potential profit will start to appear in PnL faster, and most importantly, it will become larger because of the larger position volume.
No one knows when the unfavorable situation will stop, but the trader must ensure the safety of the capital! It is really easy to destroy your deposit quickly and uncontrollably if you take a position against yourself. That is why we have invented the rules that will help you to save your money with this method of trading:
- The first position opening should always be around 35-40% of the planned volume.
- The stop-loss order is always fixed (for example, a potential stop of $50 to $70 per position).
- When averaging against yourself, the stop loss is never moved from 40% to 50% up or down.
- Your potential loss should always be plus or minus the same after each gain.
- If you have opened a position — sit tight to your target. Don’t get nervous, calmly follow your plan. Target on BTC $72,000 — sit to $72,000 as you planned (if it is psychologically difficult, fix 15% – 20%).
The main emphasis in these rules is on your stop loss orders. Don’t make them wider during averages, but instead, keep your stops fixed. And to get more profit you can use multipliers.
The MOVO platform allows you to increase your trading capital by up to 30 times. The intuitive setup of stop loss and take profit orders can provide you with the safest possible trading during volatile markets.
Conclusion
As we have seen — risk is present in every aspect of trading. And volatility does not always equal 100% risk. Many people see volatility as an opportunity to make a good profit. In this article, we have shown how to maximize profits and reduce risk in risky strategies. A trader should always approach trading with a cool head and correctly assess the probabilities.
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