Money management, what you need to know!

Hi all, I want to make a short post on money management with respect to volatility. We as traders or investors often focus on when to buy. Entry point is no doubt very important. However, money management and when to sell is arguably even more so. I want to share my past experience trading bitcoin which hopefully might prove useful to you. If not, maybe just an interesting read.

When we talk about money management, we really refers to how much capital to risk per trade. There are many tools to decide this amount, but the underlying principal is the same. So why is this so important? If a trader loses as huge sum of capital, it would take much more effort to recover back from. From a purely mathematically perspective, if each trade is an independent event, then there is a chance a trader will hit an unlucky streak. From my trade history, I have 55% win rate with a 5% risk per trade. What is the chance of having 4 consecutive losses in a row? The chance is about 5% to lose 20% of my capital. To recover that loss, I would need to make 25%.

I frequently see margin calls on okcoin futures. Today I saw someone got called from 0.034-0.03 on ETH. Trading with that much leverage will inevitability be unsustainable because every trader will hit these consecutive losses.

I personally use ATR, average true range to manage my stop loss. Take a look at the youtube video I made for moving average and ATR