People invest in the crypto market because of many reasons. Some want to earn a profit quickly, while experienced traders consider trading a process. Without a clear plan, you may not likely thrive in the highly volatile market.
Cryptocurrencies plunge and surge at any given time. You can trade and win through luck, but losses will outweigh the gains in the long run if you don’t have a better plan. Traders who have a better trading plan and use regulated trading platforms statistically, have a much bigger chance of success.
However, you need to commit adequate time to research and devise a plan to work in the financial market.
How to develop a trading plan
You can follow another trader’s plan, but there are no guarantees that it will work all the time. Any professional trader will tell you that the best strategy is one initiated by you. To come up with a good plan, consider the following factors.
Set risk level
Any trader should know their risk level. You cannot invest all your capital in a single trade. Although the risk level can vary, it should not exceed 10 percent for each trade. If you lose your money on one trade, you will still have enough time and capital to start another trade. In case you lose, it’s considered wise to relax and start trading again the following day.
Set clear goals
Ensure you have clear goals for each trade. The profit target should appear realistic and achievable. Also, have a stop-loss limit in case your trade goes the opposite direction.
On many occasions, bitcoin traders fall victim to greed. For example, some traders will only enter a particular trade when the profit potential is four times bigger than the risk. Many analysts suggest a (2:1) reward/risk ratio for each trade.
Do your research before investing
How often do you check what is going on in the global markets before your preferred market opens? The Crypto market is based on factors such as supply and demand. Also, important global news and economic data can have a significant impact on crypto prices.
If there is a major announcement about global economic data, it is wise to wait before taking a position. You can enter a trade and incur a loss because the crypto market reacts quickly to economic reports.
Many traders lose money because they make hasty trades based on emotions. Emotions such as fear of missing out (FOMO) are a significant factor that led many people to financial ruin. You can identify a trend setup in progress and decide to join the action since you fear missing the opportunity. Although you may win, the trend can reverse quickly, and you may lose your capital. You should analyze the market and wait for the right moment to enter a trade.
Before investing your capital, enhance and improve your skills. Many platforms allow beginners an opportunity to trade various assets without using their capital. Take advantage of such platforms to boost your trading strategies. Once you feel confident about the trading process, you can invest your capital and start trading.
Have an exit plan
Traders focus all their attention on buy or sell signals and forget to set a clear exit strategy. Since the crypto market is volatile, the trades can go in any direction. Even experienced traders with better technical, analytical tools make a mistake. The advantage of an exit plan is that it allows you to exit a trade before your capital is wiped out of the financial market.
Losing is part of winning. Many professional traders lose on particular trades but often win because they have a better risk management plan. Therefore, ensure you have a clear exit plan and a take-profit level for your trades.
Get a trading journal
Do you review your earlier trades? A trading journal is equally important. People tend to ignore the importance of a trading journal if they are losing often. A trading journal will help to organize your trading journey.
Moreover, reviewing your earlier trades will help to identify your strengths and weaknesses. For the most part, the trading journal will assist traders in re-evaluating their strategies and make adjustments.
Traders can get overwhelmed in the market and find themselves entering many trades. If you lose on a trade, you may decide to enter another trade quickly, hoping to recover the loss. Also, when you win, you can choose to initiate another transaction. Whatever the case, entering many trades within a day can impact the overall account size. You’re not going to win often.
When you record a loss, it’s wise to wait the following day before starting another trade. Thus, having a clear plan on the number of trades you can enter in a day can help avoid such common mistakes.