Reference
Risk Management
Good signals are only half of the equation. Risk management — position sizing, stop-loss mechanics, and circuit breakers — determines whether you stay solvent long enough to benefit from those signals.
DisclaimerThis page is educational guidance, not financial advice. Crypto markets are highly volatile. Losses can exceed your initial investment when using leverage.
Position sizing
The most important variable you control is how much to allocate to each trade. PyreFi recommends the fixed-risk method: risk a defined percentage of your total portfolio on each trade.
Fixed-risk formula
Position Size = (Portfolio × Risk%) ÷ (Entry − Stop Loss)Example: $10,000 portfolio, 2% risk, ETH entry $3,200, stop $3,000. Risk amount = $200. Position size = 200 ÷ (3,200 − 3,000) = 1 ETH.
| Risk level | % per trade | Suitable for |
|---|---|---|
| Conservative | 0.5–1% | Capital preservation, new traders, uncertain markets |
| Balanced | 1–2% | Active traders with a defined edge and track record |
| Aggressive | 2–5% | Experienced traders in high-conviction setups only |
| Speculative | >5% | Not recommended — ruin risk is very high over many trades |
Stop-loss mechanics
Every PyreFi signal includes a stop-loss level. The stop is not arbitrary — it is placed below (for longs) or above (for shorts) a structural level where the original thesis breaks.
Structure-based stops
The stop-loss is placed beyond the most recent significant swing high or low on the relevant timeframe. This prevents being stopped out by normal market noise while protecting against thesis failure.
ATR adjustment
For high-volatility tokens, stops are widened using the Average True Range (ATR) to account for the token's typical daily move. A tight stop on a high-ATR token will get hit by noise before the real move.
Never move stops against the trade
Moving a stop further from entry to 'give the trade more room' increases loss if the stop is hit. If the original stop level was wrong, close the position — do not adjust the stop.
Trailing stops after TP1
Once price hits TP1, consider moving your stop to breakeven or just above entry. This converts the trade to risk-free and lets the remaining position run toward TP2.
Circuit breakers (auto-execution)
When using auto-execution (VIP tier), PyreFi enforces circuit breakers that suspend trading if losses reach predefined thresholds. These protect against runaway losses from model degradation or unusual market conditions.
Daily loss limit
Trading suspends when cumulative realized losses in a calendar day exceed your configured percentage. Default: 5%. Range: 1–20%. Resets at midnight UTC.
Consecutive loss limit
Trading suspends after N consecutive losing trades. Default: 5 trades. This catches model degradation in specific market conditions.
Drawdown limit
Trading suspends if the account's drawdown from its peak balance exceeds a threshold. Protects against compounding losses over multiple sessions.
Volatility halt
New positions are blocked when market volatility (as measured by BTC realized volatility) spikes above 3x its 30-day average. Extreme volatility environments invalidate most signal models.
Portfolio-level risk
How many open positions should I hold?
This depends on your portfolio size and strategy. As a starting framework: hold no more than 5–8 open positions simultaneously. More than this makes it difficult to monitor stops and tends to produce correlated losses in downturns — crypto tokens move together during market-wide selloffs.
Should I trade correlated tokens?
With caution. BTC, ETH, and most altcoins are highly correlated in drawdowns. A signal on both SOL and AVAX during a risk-off environment may result in both stop-losses hitting simultaneously. Treat highly correlated positions as a single larger bet.
What is the role of cash/stablecoins?
Holding cash is a position. During periods of high market uncertainty (extreme Fear & Greed readings, macro events), reducing exposure by increasing stablecoin allocation is a valid strategy. PyreFi's Sentiment Score and AI Risk metrics can help identify these windows.
What leverage does PyreFi recommend?
PyreFi signals are designed for spot trading. If you use leverage, keep it low (2–3x maximum). Higher leverage compresses the stop-loss distance needed to achieve the same risk amount, making it harder to use structure-based stops without excessive position size.