️ Risk Management Basics

• Position Size: The amount of capital you allocate to a trade, often expressed as a percentage of your total equity.
• Risk per Trade: The dollar (or coin) amount you’re willing to lose if a trade hits your stop—typically 1–2% of your account.
• Reward-to-Risk Ratio: Compares potential profit to potential loss (e.g. 3:1 means you aim to make $3 for every $1 risked).
• Maximum Drawdown: The largest peak-to-trough decline in your account balance—measures the worst historical loss.
• Leverage: Borrowed capital that magnifies both gains and losses; higher leverage increases risk of liquidation.

️ Order Controls

• Stop-Loss Order: An order set to exit a position if price moves against you by a predefined amount—your safety net.
• Take-Profit Order: An order to close a trade once it reaches your target profit level—locks in gains automatically.
• Trailing Stop: A dynamic stop-loss that moves in your favor as price advances but stays fixed if price reverses.
• Break-even Stop: Adjusting your stop-loss to your entry price once a trade is sufficiently profitable—ensures a “no-loss” outcome.
• Hard vs. Soft Stops:
  • Hard Stop: A strict on-chain or exchange-level order you cannot override.
  • Soft Stop: A mental or manual stop that relies on you to execute.

🧠 Trading Psychology

• FOMO (Fear of Missing Out): The urge to jump into a winning trade late because you don’t want to miss profits.
• FUD (Fear, Uncertainty, Doubt): Negative news or chatter that can trigger panic selling.
• Confirmation Bias: Seeking out information that supports your existing view and ignoring the rest.
• Recency Bias: Overvaluing recent performance when making decisions (e.g., “It’s been green all week, so it must keep going!”).
• Emotional Contagion: Letting the mood of the market or community dictate your decisions instead of your plan.

Journaling & Review

• Trading Journal: A log of every trade with entry/exit points, size, rationale, and outcome—essential for self-analysis.
• Post-Trade Analysis: Reviewing each closed trade to identify what worked, what didn’t, and how to improve.
• Edge: The statistical advantage your strategy has over random chance—documenting your edge helps maintain confidence.
• Checklist: A pre-trade list of criteria (setup, risk limits, news checks) to ensure consistency and discipline.
• Performance Metrics: Tracking your win rate, average gain/loss, and expectancy (average profit per trade).

Advanced Risk Metrics & Tools

• Value at Risk (VaR): Estimates the maximum expected loss over a set period at a given confidence level (e.g., $1,000 at 95% VaR).
• Sharpe Ratio: Return per unit of volatility; higher values indicate better risk-adjusted performance.
• Sortino Ratio: Similar to Sharpe but only penalizes downside volatility, focusing on harmful swings.
• Exposure: Total amount of capital currently at risk across all open positions.
• Correlation: Degree to which your trades or assets move together; lower correlation reduces portfolio risk when diversifying.

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