During the #altcoin (#altcoinseason ) season, when cryptocurrencies other than Bitcoin ($ETH , $BNB ,...) often have strong volatility and high growth opportunities, risk management and profit optimization are important.
One of the important risk management tools is the R (Risk Reward Ratio), which helps you make informed trading decisions and control your profits/losses. Here's how to understand and apply the R ratio in the context of Altcoin Season!
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1. What is the R ratio?
The R ratio is a tool to measure the level of risk (Risk) you accept to achieve the desired profit (Reward).
Use the R ratio to determine whether a trade is worth taking based on the profit/loss potential. Helps control risk, manage psychology, maintain discipline, avoid random trades, and maximize profits on each trade!
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2. How to calculate R-Ratio in altcoin trading
Risk: The amount of money you are willing to lose if the trade goes against you. You determine this by setting a stop-loss.
Reward: The amount you want to make from this order. This can be based on resistance or a desired price target and is determined by a take-profit order.
If you set your R ratio to 1:3, it means you are willing to lose 1 part for the chance to gain 3 parts. The higher the R ratio, the higher the potential profit compared to the risk.
Let's say you enter a buy order for 1 ETH at $1.00, set a stop loss at $0.90 and a take profit target at $1.30:
Risk (R) = $1.00 - $0.90 = $0.10
Profit (Reward) = $1.30 - $1.00 = $0.30
Ratio = $0.30 / $0.10 = 3, meaning you accept losing 1 part for the chance to earn 3 parts.
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3. Apply R-Ratio in Altcoin Season
During altcoin season, altcoins often have large fluctuations, so the R ratio helps you choose transactions with high profit rates. Specifically, each step is as follows:
► Step 1: Identify Support and Resistance Levels
Support and resistance are the basic tools for placing stop loss and take profit. You should choose a strong support level (a price point that is difficult to break when falling) to place stop loss and the nearest resistance level to place take profit.
During altcoin season, resistance can be broken, so be flexible in increasing your take profit level.
► Step 2: Choose the Right R Ratio
You can apply R ratio 1:2, 1:3, or higher, depending on the volatility of the coin.
The ideal R ratio is 1:2, meaning you are willing to lose 1 part to gain at least 2 parts.
High R ratio (like 1:5): Should only be applied to altcoins showing signs of strong growth or breakout from long-term resistance.
Lower Ratio (like 1:1): Applicable to short term orders, based on nearest resistance/support level.
Real Life Example:
You trade$DOGE coin:
Purchase Price: $0.50
Stop loss: $0.45
Take Profit: $0.65
Risk: $0.50 - $0.45 = $0.05
Reward: $0.65 - $0.50 = $0.15
Ratio = $0.15 / $0.05 = 1:3. This is a trade worth taking because the expected profit is 3 times the risk.
► Step 3: Use Technical Analysis Tools
RSI (Relative Strength Index): Helps identify overbought/oversold. When RSI shows oversold near support, it may be a good time to enter a buy order with a higher R ratio.
MACD (Moving Average Convergence Divergence): Determines the uptrend/downtrend. When MACD signals an uptrend and the price is near the support level, you can enter a buy order and set a take profit at the nearest resistance.
► Step 4: Choose Entry Point and Set Stop-Loss/Take-Profit
Entry point: Choose price zones near support or when there has just been a breakout from resistance.
Place Stop-Loss: Place below important support level (for buy orders) or above resistance level (for sell orders).
Set Take-Profit: Depending on the desired R-ratio and next resistance. During altcoin season, it is advisable to be flexible in adjusting take-profit as the price may surge beyond expectations.
During altcoin season, prices can rise beyond expectations. Be flexible in using Trailing Stop-Loss to secure profits as prices continue to rise.
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4. Advice on applying R-Ratio in Altcoin Season
► Always be patient: Altcoin season can be very attractive, but patiently waiting for orders with good R-ratio is the key to stable profits.
► Capital management: Only risk 1-3% of total capital for each transaction. Even though the R ratio is high, remember to manage capital properly and do not put all of it in one order.
► Follow the news: Altcoin season is often affected by big news such as cooperation, technology upgrade or listing announcement on major exchanges. Follow the news with @caocaoo2211 to adjust profit targets or stop orders in time.
No trade is 100% guaranteed to win. Effective risk management is key.
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Conclude
The R ratio is a tool that helps you trade more disciplined and efficiently, especially during volatile market times like altcoin season.
Remember, capital management and trading psychology are the factors that determine your long-term success: Discipline + patience
Every day, CRIPTO always posts technical analysis, information, knowledge,... similar to different coins. Follow CRIPTO (@caocaoo2211 ) to update technical indicators or interesting information about crypto!
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Note: Crypto markets are highly volatile, and relying on technical analysis does not guarantee results. Please consider and make decisions based on your risk tolerance.
