Lesson 2 Risk Management

What is the primary issue with setting a stop loss at breakeven?

• It's an arbitrary decision not based on the trade idea.

• It guarantees a profit.

• It increases the potential gain.

• It's recommended for all trading strategies.

Answer explanation

Setting a stop loss at breakeven is an arbitrary decision not based on the trade idea.

Why is it not advisable to make trade management decisions based on the amount of green P/L seen?

• It's always better to focus on red P/L.

• It's the standard practice in professional trading.

• Green P/L indicates a successful trade.

• It's a psychological coping mechanism rather than process-driven decision-making.

Answer explanation

It is not advisable to make trade management decisions based on the amount of green P/L seen because it's a psychological coping mechanism rather than process-driven decision-making.

What does moving a stop to breakeven potentially sacrifice?

• The certainty of a loss.

• The initial investment.

• The need for further analysis.

• The potential gain from the trade idea.

Answer explanation

Moving a stop to breakeven potentially sacrifices the potential gain from the trade idea.

In the context of leverage trading, what is liquidation?

• The process of taking profits.

• Increasing the leverage on a position.

• Forcibly closing a position when maintenance margin runs out.

• Transferring positions between exchanges.

Answer explanation

Liquidation is the process of forcibly closing a position when maintenance margin runs out.

What is a key risk of high leverage in trading?

• It guarantees higher profits.

• It reduces the position size.

• It brings the liquidation point closer.

• It eliminates the need for a stop loss.

Answer explanation

High leverage in trading brings the liquidation point closer, increasing the risk of losing the investment.

Why is diversification in crypto tricky, especially during market downturns?

• Because all cryptocurrencies increase in value.

• Because cryptocurrencies are not correlated with each other.

• Due to strong positive correlations, especially to the downside.

• Diversification is not tricky in crypto.

Answer explanation

Diversification in crypto is tricky due to strong positive correlations, especially to the downside.

What is a recommended security practice for crypto traders?

• Sharing seed phrases with trusted individuals.

• Using unique emails and non-SMS two-factor authentication.

• Keeping all funds in a single exchange.

• Using the same password for all accounts.

Answer explanation

Using unique emails and non-SMS two-factor authentication is a recommended security practice for crypto traders. It helps protect against unauthorized access and phishing attacks.

What is the effect of leverage on P/L according to the video?

• Leverage directly increases P/L.

• Leverage decreases P/L.

• Leverage has no effect on P/L.

• Leverage dictates P/L based on position size.

Answer explanation

Leverage dictates P/L based on position size.

What is a common mistake traders make regarding their trading process?

• Always using low leverage.

• Focusing solely on technical analysis.

• Arbitrarily closing trades based on non-market factors.

• Ignoring market trends.

Answer explanation

A common mistake traders make is arbitrarily closing trades based on non-market factors.

What is the suggested approach to trading according to the video?

• Following social media trends.

• Trading based on intuition.

• Avoiding leverage at all costs.

• Being process-oriented and open to scrutiny.

Answer explanation

The suggested approach to trading, according to the video, is being process-oriented and open to scrutiny.