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2023-06-23 • Updated

How to Make a Cryptocurrency Trading Plan


With each passing day, more and more traders join in on cryptocurrency trading. It’s unsurprising, considering the cryptocurrency market has been rapidly expanding for over a decade. Traders see a lot of earning potential in cryptocurrencies, which is why this market is so popular right now.

However, over the years, cryptocurrencies have gained a reputation as one of the riskiest financial instruments to invest in. Many traders lose their funds in the crypto market. But while their losses can be attributed to the inherent volatility of cryptocurrencies, it’s worth mentioning that many traders fail to prepare for trading cryptocurrencies or stick to their trading plan.

A trading plan is a crucial element of a trader’s success. Without it, it’s impossible to achieve long-term profitability. In this article, you’ll learn why cryptocurrency trading plans are important and how to make a trading plan on your own.

Understanding the importance of a cryptocurrency trading plan

Before delving into the significance of trading plans in cryptocurrency trading, let’s define what a trading plan is. A trading plan is a set of rules traders compile to achieve maximum trade profitability. A trading plan registers essential information about future trades, such as timing, volume, profit targets, etc. Every trader creates a unique trading plan that caters to their financial goals, resources, preferred style, and level of proficiency.

When it comes to cryptocurrency trading, having a trading plan is often the only thing that keeps you from imminent losses. While cryptocurrencies can tempt traders with potentially high rewards, these financial instruments are highly volatile, so trading without a thought-out plan will likely lead to grave consequences.

Creating a trading plan can also help you develop and stick to a trading regime, which is particularly important for trading in high-stress markets like the cryptocurrency market. Trading plans can guide you when you feel lost or too emotional to make rational decisions and allow you to keep track of and analyze your previous trades for future reference.

Now that you know why cryptocurrency trading plans are important, it’s time to learn how to make them.


Step 1: defining your trading goals and objectives

The first thing you need to do to make a cryptocurrency trading plan is determine your goals. This step might seem redundant to some traders, but inexperienced traders often skip it altogether in haste to earn money as soon as possible. But without clear objectives, it’s hard to determine when it’s time to close the trade, causing them to miss good exit opportunities.

So before you start working on your trading plan, think about what you want to obtain from trading. Do you want to focus on long-term trades with higher yields? Or would you instead commit to day trading with lower but more frequent pay-offs? Do you prefer low-risk financial instruments, or are you prepared to bear higher risk? What are your weekly, monthly, and yearly profit expectations?

All these questions require careful consideration because your entire trading plan depends on your answers.

Step 2: use fundamental and technical analysis

Trading is only possible by analyzing the market for potential trading opportunities. There are a multitude of different sources, tools, and indicators that can help you gain important information about the current market conditions. Using all of them simultaneously is unnecessary, but you need to know the general principles of fundamental and technical analyses.

Fundamental analysis studies underlying factors that affect the market movement. Regarding crypto trading, these factors include blockchain metrics, the amount of crypto staked, hash rate, etc. By analyzing this information, you can determine the value of a cryptocurrency, find out whether it is undervalued or overvalued, and decide if you want to trade it.

When it comes to technical analysis, it involves studying the current price action via price charts and comparing it to historical market data. One of the basic principles of technical analysis is that history repeats itself. So, based on the accumulated records of the previous price movements, you can make predictions about the market movements.

There are a great variety of indicators based on technical analysis that measure different parameters: volume indicators, trend indicators, momentum indicators, support/resistance indicators, and so on. You need to know how to use these indicators to gather comprehensive data for your trading plan.

Step 3: selecting cryptocurrencies to trade and determining position sizes

Once you understand how to use fundamental and technical analysis, you can choose the cryptocurrency you want to trade. There are two main things you need to consider when it comes to cryptocurrency trading:

  1. Market trend. Your preferences regarding the direction of price movement determine which asset you should trade. Do you prefer being a bull or a bear? And let’s not forget about the strength of a trend. Whether the trend is strong or weak, set to continue or reverse, is essential to consider when making a trading plan.
  2. Volatility. Cryptocurrencies are notorious for their volatility. Learning whether a cryptocurrency is highly volatile can help you better understand your chances of success if you were to trade it.

After you make the decision, you need to determine the size of your trades. One of the gravest mistakes novice traders can make is pulling their entire account into one transaction. That’s why it’s crucial to decide on position sizes in advance. This way, you are more likely to resist the urge to open large positions and increase risk.

Step 4: setting entry and exit points

The next logical step is calculating entry and exit points for your cryptocurrency trades. This is where your technical analysis skills will come in handy since you need to study price charts to find an opening. But before deciding to enter a trade, you need to ensure there is an exit out of it. Without having a potential exit in mind, it’s hard to know when to stop.

If you see a potential opening, look for a level to place a profit target. You can pick a price level ending with a round number (like $90) or increased by a round number percent (like 10%). The most important thing to remember is to stay rational. If you set your exit too high, you risk never reaching it and missing other opportunities.

As for entries, you need to look for an entry signal on the chart. If you find one and see a potential exit, you can finally open a position. But don’t put too many restrictions or rules for your entry points because this may deprive you of good trading opportunities.

Step 5: developing a risk management strategy

Arguably, the most critical part of any trading plan is developing a risk management strategy. Considering the volatile nature of cryptocurrencies, having a thorough risk management plan is often the crux of success.

In risk management, you first need to decide on your trade capital. How much of your funds are you willing to risk? Generally, you’ll hear advice not to risk more than 5% of your capital on one trade, especially when it comes to crypto trading.

Next is placing stop-loss orders. These orders can close your positions once the price hits a certain level. Because of this, even if you don’t get any profit from your trade, you also won’t lose much since stop-loss orders cap the amount of potential losses. Using take-profit orders or limit orders while planning your exits can also be helpful, as these orders automatically close your trades.

Step 6: implementing and monitoring your trading plan

After you finish the initial preparations, it’s time to implement your trading plan. At first, it’s better to test it on small trades to see if it works in real-life trading. If you encounter no problems, you can use it for bigger trades.

With trading plans, staying true to the rules you’ve established for yourself is essential. Cryptocurrency trading is stressful, and it’s often hard to keep a cool head when dealing with volatile markets. Trading plans can anchor you and help you focus on your goals in these situations. But only if you follow it without allowing your emotions to distract you.

Another thing to remember is that even if you place trade orders to close your positions automatically, it’s still crucial to monitor your trades and trading plan. Crypto trading is volatile, and the price jumps can be rather extreme and bypass your orders without triggering them. So be present for your trades to ensure everything goes according to plan.

Step 7: evaluating and adjusting your plan as needed

Nothing in this world is 100% perfect. It’s only fair that you might find your initial trading plan lacking somehow. You can always adjust or scrape it entirely and create a new plan. The choice is yours, and the only thing you need to be concerned about is whether your trading plan is bringing you profit. Keeping records of your trades is an excellent way to analyze the efficiency of your plan. As long as you strive to improve and continue developing your skills, you have a great chance to become a successful trader.

Conclusion: the benefits of a comprehensive cryptocurrency trading plan

Cryptocurrency trading can yield high profits but also put you in debt if you’re not careful with your trades. Having a cryptocurrency trading plan can help you improve your trading skills, learn how to make informed decisions, keep your trades in order and your profits stable, and teach you how to deal with unpredictable market moves. Don’t put off creating a trading plan if you want to make the most out of every trading opportunity you see.

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