Risk Management and Altcoins

First it's important to understand that there are no golden/ideal rules when it comes to risk and trade management. It depends on your lifestyle, on how much you're willing to risk... your overall trading strategy.

I'll answer briefly here a couple of questions I've had recently, this is my personal opinion and approach. It fits me and is the result of a couple of years of experience trading altcoins. THIS IS IMPORTANT. Find a risk management strategy that fits the way you trade, not somebody else.

What is the maximum number of alt positions you can have / maximum % of altcoins you can have in your folio at a certain time / simultaneously?

We all know there are multiple best and worst case scenario, or context, environment, to trade altcoins.

The two most obvious and easiest context and environment are

1) Bitcoin is in a context favorable to altcoins, price is ranging or trending slowly without peak of volatility.

2) Bitcoin is a context of uncertainty approaching a technical level of interest, this creates an hostile environment to altcoins, despite a few lone runners (often called Huobi season).

In the context of 1)

Whenever altcoins are having a run like we had in May (for context, this post was written shortly after the COVID crash) it can happen for me to have up to 50% of my entire folio in altcoins exposure.

I rarely have more than this, as I consider it being already a lot. It often means that it's a moment I'm fully dedicated to trading altcoins, and altcoins only, and that I have extra time to manage these positions/scan the market more precisely.

Having half of your trading folio in altcoins is already considered as a degen risk for many, and it's highly understandable to think so considering how volatile this market is.

Again, this is a personal approach.

I insist, this happens when I am really confident enough that altcoins won't get affected much by Bitcoin movements, or because I believe it won't move much (Price ranging like we've had since the beggining of May, it was a great hint).

Therefore as a first conclusion, we can say that

Always having a focus and good understanding of the context of trading in which Bitcoin is, is a major component of altcoins trading risk management.

You can always look for isolated trends, often happening on Huobi, altcoins completely uncorrelated with Bitcoin, however this is a rare event and it's very often better to have the mentality shared above.

In context of 2)

In times, like right now (June 10th 2020), where I'm indeed expecting volatility from Bitcoin after weeks of ranging, it tends (bear market PTSD) to give me doubt about any altcoin strength continuation.

Therefore, I'm looking to reduce my altcoins exposure (not necessarily my BTC exposure).

It means that in my (it's personal, again no golden/ideal approaches, all of them have multiple pros and cons), trading system I'll try to keep less than 5% risk ON for altcoins. Or no more than 2 "freshly" opened positions (I always keep my risk per trade of 2%, this is what defines later my size position based on my invalidation).

As I'm very uncertain about current Bitcoin context this is the maximum that I allow myself to have. I'll most likely won't open any new position until I have more clarity (in the coming days/by the end of the week).

It gives me more time either to manage still opened position, either to scan more and get ready in case of continuation.

As a second conclusion, a very obvious one, we can say that

You can reduce your risk by reducing exposure/taking profits over the board whenever you're not confident in altcoins anymore. However this lack of confident should ALWAYS be motivated by a clear Bitcoin (and potentially other tools like bitcoin dominance, volume study, ....) study/analysis.