Slide 1: Module 5: Risk Management (Crucial for All Trading)

Title: Module 5: Risk Management

Subtitle: Crucial for All Trading

Slide 2: Why Risk Management is Paramount

Title: 5.1 Why Risk Management is Paramount
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Preserving Capital: Your primary goal is to protect your initial investment.
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You can't trade if you run out of money.
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Dealing with Volatility: Crypto markets are highly volatile.
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Prices can move dramatically in short periods.
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The "Don't Lose Money" Principle: Focus on minimizing losses first, then
maximizing gains.
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Long-Term Success: Consistent risk management leads to sustainable trading.
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Slide 3: Defining Your Risk Tolerance
Title: 5.2 Defining Your Risk Tolerance
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Personal Comfort Level: How much are you emotionally comfortable losing on a
single trade or in your portfolio?
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Financial Capacity: How much can you afford to lose without impacting your life?
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Setting a Maximum Percentage:
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Determine the maximum percentage of your total trading capital you are willing to
risk on any single trade.
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Common Rule: 1% to 2% of your total capital per trade.
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Example: If you have $1,000, risking 1% means you're willing to lose $10 per trade.
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Slide 4: Position Sizing
Title: 5.3 Position Sizing
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Definition: Determining the appropriate amount of capital to allocate to a single
trade.
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Calculation: Based on your risk tolerance and the distance to your stop-loss.
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Formula: Position Size = (Total Capital * Risk Percentage) / (Entry Price - Stop-Loss Price)
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Example: $1,000 capital, 1% risk ($10). Buy BTC at $60,000, Stop-Loss at $59,500
($500 risk per BTC).
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Position Size = $10 / $500 = 0.02 BTC
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Purpose: Ensures that even if a trade goes against you, the loss is manageable and
doesn't severely impact your overall capital.
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Slide 5: Stop-Loss and Take-Profit Strategies
Title: 5.4 Stop-Loss and Take-Profit Strategies
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Stop-Loss Orders (Revisited):
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Purpose: Automatically sell to limit potential losses.
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Placement: Placed at a predetermined price point where you've decided your trade
idea is no longer valid.
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Critical: Always set a stop-loss on every trade, especially in volatile crypto markets.
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Take-Profit Orders (Revisited):
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Purpose: Automatically sell to lock in gains when a target price is reached.
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 Placement: Placed at a predetermined price point where you expect to take profits.
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Trailing Stop-Losses:
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A dynamic stop-loss that moves with the price as it goes in your favor, protecting
profits while allowing for further gains.
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Slide 6: Diversification (Basic Principles)
Title: 5.5 Diversification (Basic Principles)
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Definition: Spreading your investments across different assets to reduce overall risk.
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"Don't Put All Your Eggs in One Basket":
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If one asset performs poorly, the impact on your entire portfolio is minimized.
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Diversifying in Crypto:
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Invest in different types of cryptocurrencies (e.g., Bitcoin, Ethereum, stablecoins, DeFi
tokens, NFTs).
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Avoid putting all your capital into a single, highly speculative altcoin.
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Consider different sectors within crypto.
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Slide 7: The Importance of a Trading Plan and Journal
Title: 5.6 The Importance of a Trading Plan and Journal
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Trading Plan:
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A written document outlining your strategy, risk management rules, entry/exit criteria,
and goals.
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Helps you make objective decisions and avoid emotional trading.
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Example: "I will only risk 1% per trade. I will only enter if RSI is below 30 and price is
at support."
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Trading Journal:
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A record of every trade you make.
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What to record: Date, asset, entry price, exit price, position size, stop-loss, take-
profit, reason for entry/exit, emotions, lessons learned.
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Purpose:
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Identify strengths and weaknesses in your strategy.
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Learn from mistakes and successes.
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Track your performance over time.
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Slide 8: Activities & Assessment
Title: Activities & Assessment
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Activities:
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Scenario Exercise: Given a hypothetical capital and risk tolerance, calculate a
position size for a trade with a defined entry and stop-loss.
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Discussion: "Why is it harder to stick to a trading plan when the market is moving
very fast?"
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Assessment (Q&A / Exit Ticket):
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What is the primary goal of risk management?
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 If you have $5,000 and risk 2% per trade, what's your maximum loss per trade?
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Why should you always use a stop-loss?
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What's one benefit of keeping a trading journal?
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Slide 9: Conclusion & Next Steps
Title: Conclusion & What's Next
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Conclusion: Risk management is not just a suggestion; it's the foundation of
successful and sustainable crypto trading. By defining your risk, sizing your positions,
using stop-losses, diversifying, and maintaining a trading plan/journal, you
significantly increase your chances of long-term survival and profitability.
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Next Steps:
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Develop Your Own Risk Management Plan: Start simple, then refine.
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Practice: Apply these concepts diligently in demo trading.
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Review: Regularly assess your risk management effectiveness.
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