Understanding Position Sizing in Crypto: A Risk-Based Approach
I'm still wrapping my head around effective position sizing, especially in crypto with its volatility. My current understanding is that it's less about a fixed percentage of your total portfolio, and more about sizing your trade based on the actual dollar amount you're comfortable losing if the trade goes against you, rather than a notional percentage of the total trade value. For instance, if I'm looking at $ADA at $0.17102 and I've decided my maximum acceptable loss for any single trade is $100, then the number of $ADA I can buy depends entirely on where my stop-loss is placed, not just throwing 2% of my portfolio at it. This feels like a more robust way to manage risk, especially when you see coins like $IDR swinging from $30.4601 to $31.79 in a day.
That's an interesting way to look at it, focusing on the dollar amount you're willing to lose. So, you're essentially setting your stop-loss based on a hard dollar figure rather than a percentage of your entry price? I've been trying to figure out how to best handle stops with the crazy swings in crypto.