How to do "Risk Management"?

5 Core Strategies for Risk Management in Cryptocurrency Investment
Why risk management is necessary
Cryptocurrencies are known for their high volatility, with severe fluctuations over 24 hours, risks of projects going to zero, and high technical barriers, making unprotected investments akin to "running naked." Strict adherence to Risk Management strategies is the lifeline for navigating through bull and bear markets.
5 Tips to Maintain the Bottom Line
1️⃣ 1% Rule
The risk of a single investment should not exceed 1% of the total capital. With a principal of 100,000, the maximum loss is 1,000 yuan, which can be achieved using stop-loss orders or small positions, and refusing to go all-in.
2️⃣ Stop Loss and Take Profit Automation
Set trigger points in advance: Automatically cut losses when the stop-loss price is breached to prevent deep losses, and automatically take profits when the take-profit price is reached to prevent greed. Machine execution > emotional decision-making.
3️⃣ Diversification + Hedging Combo
▸ Cross-currency/track allocation (e.g., BTC + ETH + DeFi tokens)
▸ Hedge against downside risk with futures contracts: For example, short BTC futures to offset losses in spot with profits from contracts.
4️⃣ Ironclad Exit Strategy
Set staggered take profits during a surge (e.g., sell 20% of your position for every 10% increase) and strictly enforce stop losses during a crash. Remember: unrealized profits are just paper wealth.
5️⃣ DYOR Pitfall Prevention Guide
Personally verify the project white paper, team background, and on-chain data, and be wary of social media hype. Check three key points:
✓ Actual Use of Tokens ✓ Fund Pool Lock-up Period ✓ Real Community Activity Level
Reminder: No matter how good the strategy is, it requires discipline to navigate. The market always punishes those who take chances.
Simplified Logic: Use data to anchor risks (1% rule) → Use tools to counter human nature (automatic profit and loss stop) → Use diversification to mitigate risks (multi-asset + hedging) → Use plans to lock in results (exit strategy) → Use knowledge to empower decisions (DYOR)