Portfolio rebalancing is a method that investors may use to realign the weightings of the assets within their portfolio. This method of cryptocurrency trading enables currencies to be returned to their original state. Rebalancing a crypto portfolio helps traders maintain their chosen level of risk while ensuring a healthy mix of crypto assets.
Consider, for instance, a portfolio comprising 25% each of Cardano (ADA), Chainlink (LINK), Ethereum (ETH), and Bitcoin (BTC) (ADA). If BTC performs well, its weight will rise to 30%, but if ETH performs poorly, its weight will fall to 20%. In order to restore their portfolio to the original allocation in this circumstance, the trader may sell BTC and purchase ETH.