Risk Management 101: Protecting Your Portfolio

The number one reason traders fail isn't bad picks — it's bad risk management. Even the best analysis means nothing if a single trade can wipe out your account.

The 1-2% Rule

Professional traders rarely risk more than 1-2% of their total portfolio on a single trade. If you have $100,000, that means no single position should put more than $1,000-$2,000 at risk.

Why? Because even a string of 10 bad trades only costs you 10-20% — painful, but recoverable. Bet 50% on one trade and you need a 100% gain just to break even.

Position Sizing

Position sizing is how much of your portfolio you allocate to each trade. A simple framework:

• ▸High conviction, large cap - Up to 10-15% of portfolio
• ▸Medium conviction - 5-10% of portfolio
• ▸Speculative / small cap - 1-5% of portfolio

Diversification

Don't put all your eggs in one basket. Spread across:

• ▸Different coins - BTC, ETH, and a few altcoins
• ▸Different sectors - Layer 1s, DeFi, infrastructure
• ▸Different market caps - Mix of large, mid, and small cap

The Importance of Cash

Keeping cash on hand is itself a strategy. Cash lets you:

• ▸Buy dips when others are selling
• ▸Avoid forced selling during drawdowns
• ▸Sleep better at night

A common allocation: 20-40% cash, 30-50% large caps, 10-20% mid/small caps.

Practice Here First

TradeGame exists exactly for this — practice these principles with virtual money before applying them with real capital. Track your results, learn from mistakes, and build discipline.