Cryptocurrencies have gained popularity in short time that attract trader with high rate of returns. The most characteristic which make a difference from traditional finance markets is its intense price volatility. Major crypto currencies like Bitcoin and Ethereum take price swing of 10% daily. This gives the trader a good rate of return. At same time there is good risk of losing money too.

In this article we will discuss more about how traders can manage this risk to maximize their chance of success.

Understanding Cryptocurrency Volatility

Following are some factors that make crypto markets more volatile.

1. Market sentiments and Speculation: The value of Cryptocurrencies can go high or lay down based on news events. If the news is about positive developments like adaptation, technology upgrades or favourable regulation can take their price high at some time. If some new that is unfavourable like exchange hack, regulatory crackdown or like server crash can take Bitcoin price lay down.
2. Liquidity: Generally crypto markets have liquidity than traditional financial markets, due to few buyers and sellers are active at any given time. This low liquidity leads to higher price swing when a substantial buy or sell order is placed.
3. 24/7 trading environment: Unlike stock markets where trading hours is defined, crypto markets open 24/7. This also leads to volatility especially when unexpected news comes at midnight when
4. Absence of regulation: Cryptocurrencies are largely unregulated. There are no regulatory authority is defined for this market that makes it vulnerable to markets manipulation.
5. Limited historical data: Cryptocurrencies gain popularity in the last decades that why there is not historical data that provides a clear market trends. It is very challenging tasks for analysis a trader to predict future price.

Key Risks in Cryptocurrency Trading

1. Extreme price fluctuations
2. Security and fraud risk
3. Psychological and emotional factors
4. Limited understanding of assets

Managing Risk  Strategies for a Volatile Market

For getting success in Cryptocurrency trading risk management play a vital role in it. Here we will see some points to manage volatility of markets in Cryptocurrencies.

1. Diversification of assets

Diversification of assets means don’t put all your capital on single asset divide your capital in multiple assets rather investing in one single asset such as Bitcoin, Ethereum and even stable coin. It reduce the loss if a single asset perform poor your all over investment is not become poor.

• Use of Stop loss and take profit orders:

If you have set a stop loss and the determined currencies hit the stop loss it automatically sell the assets and help you to reduce as your loss on the assets. In the same way take profit order allow you to look in gains when assets hit a defined price target by using this you will be stick to your strategy rather than letting emotional control loss on your trades.

• Position Sizing :

Control in size of each trade is very necessary rather than putting too much capital ino a single trade especially in volatile market put less capital at which you will wear a certain risk after loosing your capital.

• Use stable coin:

You should also add some capital in stable coin like Tether (USDT) and USD Coin (USDC) which is pinned to fiat currencies. In stable coin there is less volatility and you can predict the future of market price of that assets.

• Practice technical and fundamental analysis:

You should always analyze price pattern, Volume trends, and understanding fundamental factor. It’s a good trading strategy. Technical and fundamental analysis provide you a clear view and help you to find entry and exit points and also provide insights into the asset’s.

• Stay updated with news:

A good traders always stay updated about news of crypto currencies. A firmly information help you make right decision about trading in it and also help you to anticipate price swings.

• Avoid over trading:

In volatile markets its very easy that you have not control on your emotion and you have not control on your emotion and you overtrade for gaining quick gain. Over trading also dip your emotion stress to high level after frequent loss.

Conclusion

Cryptocurrency trading may attract traders due high rate of return but at same time trader should have to be aware of the volatility of crypto markets. Traders should follow a strategic approach of risk management. It can be done by setting stop loss and gain profit point, stop over trading, stay informed about crypto news.

You should have to a proper skill set of technical as well as fundamental knowledge, have quite pleasant discipline and ability to manage emotions all involves in effective trading you should take a pleasant time to build your own strategy for risk managements and getting a better profit from it.