Isolate Risk

An article explaining how to successfully isolate risk in less fortunate instruments.

Oh no..

Everything went according to plan: you conducted your technical analysis, and you managed your risk accordingly. Yet, despite your efforts, one or more instruments ended up in the HODL Zone. While most people might believe they made a mistake in the process, upon hindsight analysis, you're probably correct. But hey, we're all human, and mistakes are inevitable.

HODL

When you manage your risk, your HODL zone shouldn't be something to fear. It simply means you missed something, or somewhere in the world, something happened, shifting the macro environment in the markets before you could act on it. It happens to everyone. I think the easiest way to interpret the HODL Zone when looking at the instrument(s) is to see it as holding Spot.

What to do?

• I have multiple instruments inside the HODL Zone. What is the total cost of all the instruments inside the HODL Zone?

• If you have just 1 instrument inside the HODL Zone: What is the total cost of the instrument inside the HODL Zone? Calculation Explanation: You take the Entry Price of each instrument inside the HODL Zone and multiply it by the size of the instrument. By doing this, you get the total $USD value of the entire position. Value of Instrument = Entry Price x Size of the Instrument Example: Your Idle Medium Setup running DOGE ended up in the HODL Zone. Your Entry Price is $0.13 per DOGE. The algorithm has bought a total of 42069 DOGE. $0.13 x 42069 = $5.468,97.

Multiple Instruments: If you have multiple instruments in the HODL Zone, perform the same calculation for each instrument and then combine all the $USD values to determine the total amount required for those instruments.

Next?

If the total $USD value does not exceed the total $USD balance on your API, your Danger Zone should start at -100% (liquidation should be theoretically impossible). In this scenario, you could optionally transfer all excess $USD to a Subaccount and use it in a new Setup. Example: If your initial balance on your API is $10,000, and the total $USD value in the HODL Zone is $5,468.97, you could transfer $4,531.03 to a Subaccount and use this amount to run a new Setup.

With a 100% HODL Zone trading Setup in the Long direction, your instruments are theoretically unable to get liquidated, making it similar to holding Spot.

No excess balance

When the total $USD value in your HODL exceeds your initial $USD balance, you could potentially face liquidation. Transferring $USD to a Subaccount will now impact your risk profile and decrease the HODL Zone. If you choose to do this, you should conduct in-depth analysis on the instrument(s) and assess the probabilities accordingly.

Conclusion

While the HODL Zone can be uncomfortable due to the time it might take to re-enter the Trade Zone, with your risk managed, there's no need to worry about losing money. Optionally, you could transfer excess balance to a Subaccount and reinvest it in a new setup. With the Short direction, the potential for upside is unlimited, making it a riskier endeavor in the long run.

Relax, HODL and let time take you back to the Trade Zone..