The crypto market continues to draw in more and more investors every day. Whether it’s the freshness, the technology, or the hype, it seems like it’s getting bigger and more mainstream each year. This guide will teach you how to create a cryptocurrency trading plan.
Some traders see the crypto market as too volatile. Others embrace its seemingly unpredictable nature and somehow find ways to get the better of it. The truth is crypto attracts a lot of first-time traders and investors alike – young, risk-ready, and unprepared.
Table of contents:
1. Every New Crypto Trader Is Confused
The crypto market attracts a lot of newbies. Having heard about the great promise behind decentralized finance, they find themselves in front of their screens, set and ready to take over the world. And yet, very often, they need help figuring out where to start. To remedy this, you must know how to create a cryptocurrency trading plan and a strategy that demystifies the whole thing so you can start trading crypto.
Don’t worry. You’re not alone. A lot of beginner traders make, well… beginner’s mistakes. Starting without a good plan, using strategies you don’t understand, or not sticking to the rules you had set for yourself in the first place. We’ve all been there.
Setting up a proper cryptocurrency trading concept is one of the critical milestones to success in trading. However, an equally important part is sticking to that strategy. And to stick to it, you need to trust it, so it better be solid.
2. Why Is It So Important?
Given enough luck, anyone can make some one-time gains. It’s called beginner’s luck for a reason. However, betting your money on sheer luck is what we call gambling. Luck is one of those things that we don’t precisely control. A plan lets you mitigate luck and improve your chances of succeeding regardless of it.
The real challenge isn’t making short-term gains. The world works in mysterious ways, and generally, if you’re betting on your luck, you’re bound to run out of it sooner or later. Knowing how to create a cryptocurrency trading plan will help you stay in the market, making steady gains over time.
3. What Is a Trading Plan? How To Create One?
A trading concept can be considered more comprehensive than a trading strategy. Although often used interchangeably, a trading strategy is something you incorporate into a trading concept. In simpler terms, you choose or build a trading strategy based on your previously drawn plan.
When writing up a plan, you will consider your budget, risk tolerance and risk assessment, the markets you will trade on, and the trading strategies you will use. You’re going to go over the minutiae, like the hours within which you’re going to be trading and, maybe even the hours when you’re going to be taking your time off to recover before the next trading session.
A basic trading concept should include rules that control entries and exits, position sizing, and risk management. It’s generally wise to start with a plan before picking a strategy. That way, you are more foolproof, and, as a beginner, you’re better prepared for knowledge.
4. Your First Cryptocurrency Trading Plan
You make a plan based on your habits, sleep schedule, day job if you have one, your kids’ school hours, or even your hobbies and life events. A crypto trading plan is highly individual, so I’d suggest avoiding pre-made plans you might find online. If you are a crypto trading beginner, you could use a framework you could build on. And that’s precisely what you’ll find.
4.2. Use the SMART Methodology
Your crypto trading goals must be specific, measurable, and realistic. For example, you could set a goal of expanding your portfolio by 5% by January 1, 2024. Setting a tight deadline makes you far more likely to pursue the goal. One of the ways to achieve well-defined goals is by using the SMART methodology:
- Specific – Clear and well-defined (just like in the weight-loss example)
- Measurable – Progress can be easily measured so that adjustments can be made based on data.
- Achievable – Don’t put yourself under pointless pressure. Start slow. Don’t set impossible goals of becoming a millionaire by the next month. You’re simply going to get discouraged.
- Realistic – A realistic goal is a goal that is within your reach. Think about how much time you can spend trading cryptocurrencies.
- Timely – Time-oriented; you want to set a starting date, an end/renewal date, and multiple checkpoints along the way.
Keep in mind that the above is just an example. You can modify it and improve it as much as you like. The critical takeaway is to take it seriously and be as precise as possible when creating your first crypto trading concept.
5. How to Create a Cryptocurrency Trading Plan Step by Step?
Below you’ll find a list of five essential building blocks for creating your first crypto trading plan. You’d benefit from it the most by adding other blocks you consider essential for your particular situation.
5.1: Scheduling & Setting the Timeframes
Whether you’re a family man, a college senior, or a cute little toddler, you’ll have to set the time you are sure you can spend trading. Of course, contemporary technology allows you to trade wherever and whenever you want. However, as comfortable as it is, if you don’t schedule your trading hours, your trading will become scattered and chaotic.
Make sure you’ve organized the time so that you can work your day job if you have one, get quality sleep, and not stress over your coins when you’re not trading.
You’re also going to want your pre-defined timeframes, and whether you’re a day trader, a long-term position trader, or a swing trader, you want to know what’s best for you before you start trading.
5.2: Determining Your Budget
All your budget decisions should be made before you start trading. A sensible approach is only to trade the amount you can lose without harming your finances in the long term.
I don’t know about you, but I don’t necessarily enjoy always being on high alert, worrying about my coins losing value. This would only lose to emotion-driven decisions, panic selling, and greedy purchases. Instead, I set my budget along with entry and exit points, and I’m good. Make sure you get this right, so you don’t lose all of your hair the next time your coin crashes.
5. 3: Technical Analysis & Choosing the Right Coins to Trade
The first crypto you’ve heard was probably Bitcoin. Then there’s Ethereum, Doge, XRP, and so on. It’s pretty natural for many crypto traders to base their trading choices on their familiarity with a given coin or the surrounding community.
That said, If you’re serious about becoming a trader, basing your crypto purely on what you’ve read on Reddit simply isn’t going to cut it. You’re going to have to analyze which coins are worth your money. Before choosing the cryptos, one must understand their historical market data, such as price, volume, and overall volatility. Skew away from hype marketing and make data-driven purchases.
5. 4: Managing Risk
Risk is inherent to trading. No matter how much time you spend perfecting your trading concept, there will be times when losing becomes inevitable. Whether it’s a pivotal real-world event, or Elon Musk dissing your primary token on Twitter, there will be times when there’s very little you can do.
Even if you have set entry and exit points, a fixed risk-to-reward ratio, and are doing everything you can to protect your capital, you will have to accept risk as part and parcel of trading. Make sure you measure and manage it accordingly before you start trading.
5. 5: Managing Emotions and Knowing When to Quit
Everyone who’s ever had the pleasure of trading cryptos knows the dreary feeling when the coin you picked to be your top performer suddenly tanks. By the way, we highly encourage you to read the article Cryptocurrency Future: 6 Reasons Why It Is Secured to find out things ensuring that cryptos are not going anywhere soon.
Before you know it, the coin has halved in value, and it seems like everyone is selling. ‘Is this the end of Bitcoin?’ And, as we all know, Bitcoin has had many ups and downs in its history. Then, being afraid of losing what remains of your money, you join the selling frenzy and cash out with a 10% loss. Only to find out the next day that the coin is back where it was the night before.
Everyone is susceptible to panic selling and greed-driven buying. However, a cryptocurrency trading concept can help you manage your emotions. You’ve done your technical or on-chain analysis and market research and set your entry and exit points. You’re in a prime position to make data-driven decisions.
6. How to Create a Cryptocurrency Trading Plan? Next Step
The key takeaway is that you should a) have a plan and b) stick to it. If you are a new investor, cryptocurrencies have been the gateway to the world of trading and investing.
Make sure you take the time and do due diligence when building your plan. Otherwise, have a professional help you devise one. Treat your plan as an investment.
Also, remember that cryptocurrencies are just a part of the puzzle. Veteran traders don’t limit themselves to trading crypto, as it is more profitable and less risky to diversify into commodities, Forex, or Nasdaq. Since you’re preparing a trading concept, it might be more sensitive to allocate your resources to other financial instruments.