How to Develop a Crypto Trading Plan?

Jump to page contents

How to Develop a Crypto Trading Plan?

Have you ever been burnt by FOMO (fear of missing out)? Perhaps, you saw a trending token on social media that’s already rallying, and you bought, only to be burnt by a rug pull. If you can relate to this scenario, this article is for you. If you can’t relate, this article will help you learn from seasoned traders about avoidable pitfalls in cryptocurrency trading.

What is a Trading Plan?

Seasoned investors advise that you don’t invest a dime until you have a trading plan. It’s not smart to neglect this advice. You may get lucky a few times, but without a plan, the market always wins.

What then is a trading plan? A trading plan is simply the roof of what, how, and when you want to trade. It’s proof of your motive for choosing a token and what you expect from it. Though you can copy someone’s trading plan, you can’t copy his convictions. When trades start going south (as they normally would), a trading plan gives you the assurance to stay or the reason to leave.

Don’t mistake a trading plan for a trading strategy. The latter is a subset of the trading plan, and it only shows you the entry and exit points.

Is a trading plan worth it?

I know you’re thinking, “oh, do I need a trading plan?” Let’s show you some importance of a trading plan and why it is one of the most important pre-trading things to have along with your capital.

Importance of a Trading Plan

Cryptocurrency markets rely heavily on chart patterns. The buying and selling volume always makes the candle and the wick. These patterns repeat themselves, but most traders, who often made wrong buying/selling decisions the first time, fall into the same mistakes because of trader’s bias and a lack of a trading diary.

Less Emotional Trading

The single most important problem in the crypto market is knowing when to take profit or cut losses. Our emotions often interfere with our decision-making. Should we take profit at a 30% gain? What if it goes up to 80%? Will it come down to 10%?  With a trading plan, you already have your buying point and selling price target right before you initiate a buy order. You can also automate it with Take Profit and Stop loss features.

Discipline

A trading plan with records of previous trades makes it easy to identify patterns with the market (days and time) and with your chart. You’ll identify trades that work and those that won’t, and you’ll have more discipline to make informed choices.

Good vs. Bad Trading Plan

Although a trading plan is not a guarantee for success, it keeps you off the track of failure. Having a well-crafted trading plan removes a lot of stress in trading. What makes for a good trading plan?  Let’s dive in!

It is Specific

A good trading plan will have specific time frames, entry and exit points, lot size, trading goals, and others. One way to know a bad trading plan is a vagueness. If a third party cannot understand your trading plan in your absence, then perhaps, it’s too vague.

Risk Management Techniques

A good trading plan will have a risk mitigation and management plan written out. What percentage of your capital are you willing to risk on a trade? What should your stop-loss be? Like the popular quote, “everyone has a plan until he gets punched,” you cannot know all the risks you’ll encounter in a trade. Having a  trading plan helps you prepare for some of them.

Addictive Trading

A good trading plan kicks against addictive trading. Whether it’s spending all day monitoring your trades or choosing a particular trading pair and not diversifying, it’s easy to be caught up in addictive trading and not know. Success in trading takes grit, patience, and consistency. You might not get that if you’re an addictive trader.

What Does A Good Trading Plan Include?

What are the things you should consider when drafting a trading plan?

Personal Evaluation

A good trading plan will include your strengths and weaknesses, your motivation for trading and choosing a trading pair, how much time you want to put in a trade, and your trading goal. This is why you might be doing yourself a lot of disservice by copying trading plans.

Trading Strategy

Remember the English quote, “assumption is not a strategy?” It would help if you had a trading strategy before you enter any trade. Which token pairs are you most knowledgeable about? What time frame would you use? What risk to reward ratio? What order type? Your trading strategy is just a compilation of ‘questions’ you must answer to guide your buying and selling decisions. 

Risk Management

Before entering a trade, you should include your risk tolerance, risk-reward ratio, and risk management techniques. Will you use the 1% principle or the 3% principle for buying? How much loss are you willing to bear? Where should your stop loss and take profit points be? Don’t get emotional in your plans. Don’t overestimate rewards and underestimate risks.

Trading Diary

Part of your trading plan should include a trading diary. You ought to have a place where you record wins and losses and in what percentage they occur. Assessing your overall performance at the end of each day prepares your mind for the next.

Practical Example of a Trading Plan

Joe is our case study today. He has been bullish on bitcoin since he first bought it in 2018. Before bitcoin hits its price target of 100,000, he decides to trade with some of his holdings. This is how his trading plan will look like

Trading Goal

My long term aim for trading is: I aim to consistently grow my capital and make a regular income out of the market.

Broad trading practice principles:

  • I know and accept that the trading results I get are directly influenced by the behaviors I adopt for all positions I trade.
  • My primary aim is capital preservation in every token pair I choose. I understand that if I perform this well, then I have a springboard of meeting my trading purpose and goals.
  • Strict compliance to trading execution plan including pre-planning entry and exit systems
  • I aim to keep an account margin level of at least x%.
  • I will trade with a tolerable risk level on every single trade of no more than x% of my account balance before any trade.
  • I will not open more than x positions at any time and have a maximum of 2 trades with identical currencies.
  • I will journal every trade with the entry and exit strategies planned, the P/L outcome, and how well or otherwise I adhered to my trading plan.
  • I accept that slippage and changes in the spread are a part of Cryptocurrency trading.
  • I know that the only purpose of entering a trade is to increase the likelihood of that trade going in the right direction,
  • Any new strategy will undergo forward testing before trading live, and I would have specified my entry and exit methods in a specific strategy outline as part of my plan.
  • My first task of any trading session is to check economic data releases that may impact any open or potential position entries and have guidance on trade management within my plan.
  • If I cannot watch the market, I will always have a stop placed on the platform.
  • I recognize the importance of having other systems in place that helps my trading plan, including, but not limited to, a trading contingency plan, journaling and review system, and a learning and educational plan.

Trade Choices

  • The crypto pairs I will focus on trading are: BTC/USD, ETH/USD, SOL/USD, and DAI/USD
  • Primary timeframe(s): The primary timeframes I will focus on are: 15 mins, 30 mins, Hourly
  • I will stick to the same timeframe for an exit as I use for entry and not a longer timeframe.

Strategy Name

Moving Averages and Fibonacci Retracement

Trading Strategies

The known way for cryptocurrency enthusiasts to make money is to buy and hold, but if you’re planning to do more than that, you need a failure-proof strategy. The crypto market is highly volatile, and here are some strategies you can use to stay ahead of the curve.

Day Trading

Day Trading looks so simple at first glance, but it requires deep knowledge of the market and a very high psychological strength. As the name suggests, a day trader goes in and out of trades repeatedly over a day. Some days come with profits. Some days, losses. Day traders use indicators, deep technical analysis, and a good risk management strategy, so one of the greatest strengths of a day trader is timely access to information.

Trend Trading

Trend Trading is a long-term strategy that involves analyzing trend lines to predict if the price of a cryptocurrency is going up or down. Trend Trading requires a lot of focus as it avoids the noise of short-term price movements and uses historical data and price action to predict the future direction. The strength of a trend trader is not inaccurately predicting a direction. It is in how fast they can detect a reversal and opt-out of the trade.

Swing Trading

Swing trading is a strategy crypto beginners or enthusiasts can learn. It is the timeframe intermediary between day trading and trend trading. It uses historical data, fundamental indicators, and candlesticks to predict a token’s movement. If you’re new to trading, it may be a good place to start as you don’t need the constant checking required for day trading nor the discipline of trend traders.

Scalping

Scalping is a high-intensity trading strategy that involves complex trading tools to make small profits many times from the market within seconds or minutes. The whole aim of scalping is to take advantage of market inefficiencies to make small profits again and again. The risk involved is smaller than the other strategies, and it is best suited for highly experienced traders.

Other most popular crytpo trading strategies are crypto arbitrage trading and diversification.

Trading Tips You Need To Know

Keep Records

It is important to keep records of your trades, the pairs, the strategies used, and the outcome. It helps you see your progress, and it also helps you understand which trading plan worked best for you.

Be Disciplined

The market is not emotional (it does not like anyone and has no mercy), but you may be. It is important to keep a disciplined outlook on trading. Be strict with your entry and exit rules and stick to the plan.

Set Good Risk Management Strategies

No one keeps up with profit without a good risk management strategy. You can get margin calls at any time if you’re not disciplined with managing risks. The goal is to make profits but to do that; we first have to avoid losses.

Affordability is Nothing

New traders are often caught in the web of buying a token because it is cheaper and affordable. This is often a recipe for failure. You should look at the market cap and use cases before you buy a token. A price-cheaper token may be more expensive if you zoom out and look at the market cap.

The Market Makes Noise

Have you heard of FOMO? It’s an abbreviation for “Fear of Missing out.” It is a normal trend in the market, and you’re likely to experience it at least once.  Pump and rug-pulls are a common sight here, and you might have just entered minutes too late.

Analysis After Execution

You would need to change your trading plan as you evolve as a trader to understand yourself and the market better. Nothing is guaranteed after you place an order, but a trading plan gives you a perspective on what to expect.

Trading is more psychological than many believe and the ability to manage wins and losses to a more sustainable and predictable outcome cannot be overemphasized. Also, since nothing can be done to change a trade after it has been placed, it’s futile trying to analyze the reasons for your trade. Since you followed your gut to place a trade, you should follow it till the point of profit/loss. All the best.

Register for Latest Updates & News

We respect your email privacy

Subscribe now to recieve exclusive updates and offers!

Recently Similar Guides

Latest Guides

What are Market Orders and How to Use Them?

When it comes to trading in the financial market, whether you’re trading CFDs or buying the actual underlying asset, there are several orders you can use to execute your trade. These execution methods entirely depend on your trading strategy, and they can broadly be categorized as either market orders or pending orders. The primary difference […]

18 January, 2022

A Comprehensive Guide To Reading Candlestick Charts Effectively

Technical traders use various tools to analyze the global financial markets. With the advent of technology and the internet, traders can easily access these valuable trading tools for free. However, the problem could be choosing the right and comprehensive tool among the lot. For instance, novices can get confused with what chart to pick to […]

5 January, 2022

The Role of Fundamental Analysis

Like any other financial asset, trading cryptocurrencies require a well-defined strategy. This strategy will require a never-ending learning process. The three major analyses you’ll need to conduct are fundamental analysis, technical analysis, and a third but relatively unknown one, Sentimental analysis. The sentimental analysis is a measure of people’s sentiment towards an investment class. It’s […]

29 December, 2021

Key Drivers of the Crypto Market

The cryptocurrency wildfire has swept throughout society, and it has reached the extent where every fight against crypto has only stoked this fire. This new craze has not spared any sector of the global economy, with the sector of every nation adopting new strategies to work with digital currencies. In this article, we want to […]

16 December, 2021
Cryptocurrency,Trading

How to Develop a Crypto Trading Plan?

Have you ever been burnt by FOMO (fear of missing out)? Perhaps, you saw a trending token on social media that’s already rallying, and you bought, only to be burnt by a rug pull. If you can relate to this scenario, this article is for you. If you can’t relate, this article will help you […]

1 December, 2021
Cryptocurrency,Exchange Platforms

Top 9 Crypto Exchanges by Volume in 2022

As the crypto market continues to gain increasing mainstream popularity, crypto exchanges play a critical role by ensuring a constant supply of liquidity. There are over 500 crypto exchanges, with many more launching almost every other day. While many factors determine the best crypto exchange, the volume has always been the major determinant. Volume refers […]

11 November, 2021
Altcoins,Crypto Mining,Cryptocurrency

What is Staking in Crypto?

Let’s Define Staking Crypto staking can be likened to depositing your money in a bank. It simply means locking up your assets in exchange for rewards or interest. In other words, staking is when you commit your crypto assets in order to support a blockchain network and confirm transactions. Crypto staking is common with cryptocurrencies […]

4 November, 2021
Blockchain,DeFi

Which is the Fastest Cryptocurrency?

Cryptocurrency is now a global phenomenon that has enjoyed so much attention in virtually every sphere of human existence. From politics to banking, and even space shuttle, big corporations are now accepting digital coins as a form of payment for their products and services. With the number of digital currencies in the crypto space, there […]

25 October, 2021