This is a crypto trading risk management calculator template for Google Sheets or Excel. This spreadsheet not a trading log - but we have those too.
How to use it is explained just below, and even further down below your intro into risk management.
Get this spreadsheet: Click “File” > “Make a Copy”
Trading risk management spreadsheet user guide
First of all - You won’t be able to edit the spreadsheet linked above unless you make a copy of it into your own Google Sheets account. You can also download it and use in Excel, if you prefer.
To give you the general idea:
- This spreadsheet not a trading log. It is a calculator of trade size and set up details to help you manage your risks.
- The spreadsheet suggests to you a position size and stop loss placements for the market of your choice.
- The placement for stop loss is your cut loss level - the maximum amount you are ever willing to risk.
- Take the stop loss placements really only as a suggestion and see whether it makes sense in terms of support and resistance, but also in terms of stop hunts.
Now, to use your copy of the spreadsheet, modify the cells that have green bold text.
- At the top of the spreadsheet, change the size of your trading stash. That’s your base currencies.
- By default, you get one box for fiat and one box for crypto. For most traders that will be enough.
- Change your risk percentages. The calculator distinguishes between “low risk” and “high risk” setups. It suggests a different position size for each.
- Change you cut-loss level, AKA how many percents into loss are you ever willing to go.
Trading risk management practices explained
Risk management is a system that makes sure you survive and stay afloat as a trader. This is important in any kind of trading, but especially in volatile markets like the cryptocurrency markets.
Risk management definitions may seem a bit esoteric, so let’s break down the actual practice of it.
Adjusting position size for risk
There is a tradeoff between risk and reward. Unless you are a gambler, you want to only make high-risk trades if they offer the potential of high reward.
The risk management calculator will suggest a smaller position size if you label a trade as high-risk. That is the basic rule: change your position size in response to how risky the setup is.
Deciding the maximum loss you are going to take
In the calculator, this is labeled as the “cut loss” percentage. This is the farthest away from the entry you want to set your stop loss.
Cutting losses is important for trading psychology.
If you make a loss that was accounted for in advance, there is not that much damage done to your ability to trust your trading decisions.
Set your target
Targets are set so that your initial risk-reward ratio may be calculated.
But if the market conditions change, reconsider your target and change it if you see fit.
Decide where to move your stop loss once in profit
The calculator suggest the same distance as is your “cut-loss” value, except this time into profit.
Just as with the cut loss level, readjust if you think it will make sense to set the order differently. It is just a suggestion.
More on risk management in crypto trading
Why is risk management so important?
Proper risk management is not always about avoiding risk.
It’s also about knowing when to take risk in order to make the biggest possible gain on an investment, while carefully considering risk at all times.
This means that risk management isn’t foolproof protection against losses. However, it does help you avoid making big losses that you might not recover from.
The risk of not using risk management strategies and tools is (not surprisingly) losing more money than what would be easy to recover from.
Recovering from a loss also includes the psychological aspects: If you make a loss that was accounted for in advance, there is not that much damage done to your ability to trust your trading decisions.
Risky trading decisions occur most often from:
- overtrading or analysis paralysis (spending too much time analysing charts),
- compounding mistakes (AKA throwing good money on the bad money),
- acting emotionally vs rationally.
Risk management is a collection of risk diversification and risk mitigation strategies and tools that help you to:
- find an optimal risk-reward level for your investments,
- determine how much risk you can afford to take with any given investment,
- recognize the risk involved in any particular instrument/strategy.
Risk diversification vs risk mitigation
Risk management in crypto trading consists of risk diversification strategies and risk mitigation tools.
Diversifications in the basic sense means not putting all your eggs in one basket. This reduces the risk that the market will wipe you out in one fell swoop if it takes a downturn.
Risk diversification means not choosing only high-risk trades (or only low-risk ones).
Risk mitigation is about protecting your trade capital when risk is high. This means risk diversification and risk mitigation go hand in hand.
The following risk diversification and risk mitigation tools can help reduce risk:
- stop loss,
- take profit,
- trailing stops,
Get this spreadsheet: Click “File” > “Make a Copy”