Today we’re going to be talking about creating a Crypto trading plan. By now, you know that it’s important to establish a blueprint for all your trading activity.
Think of a trading plan as a structure that will guide you towards meeting your objectives.
There is no one-size-fits-all strategy for managing a financial portfolio. However, there are clear guidelines that you can follow to effectively manage your portfolio over the long-term.
We trade to generate a profit. Provided the value of our winning trades exceeds the value of our losing trades, we are in the black.
Your trading strategy is the roadmap to take you from point A to point B. Your trading plan should ask all the hard questions.
These include the following: Are you risk-averse, or risk seeking? What are your trading goals? How do you quantify success? How much capital do you have available? How much time can you dedicate to trading?
Once you have established your objectives, you must write them down. Monitor your progress, document your wins and losses, and maintain control over your finances.
I recommend using a trading diary for all your trading activity. It is the most effective way to perform the control function in management.
Now, let’s turn our attention to the correct position size when you’re trading Crypto. Believe it or not, your trade size is the most important aspect of your Crypto trading activity. It’s even more important than your entry point and your exit point.
Why do I say this? Because incorrect trade sizes impact the level of risk that you take on.
I always recommend that traders establish a risk limit for each Crypto trade that they make. Let’s say that you feel comfortable with 2% or less of your account value for each trade. You could even go as low as 1%.
This means that if you have £5,000 in your account, the limit per trade should be £50 at 1%, and £100 at 2%. If you prefer a fixed value per trade, make sure that it’s less than either of these percentages.
There’s also position size to consider. The total £s at risk = the Pips at risk x the value x the number of Lots traded. Remember that a standard lot is the equivalent of 10 mini lots. With a risk limit of 2% on £5,000, you can risk up to £100 when trading the BTC/USD pair.
Let’s assume that you can buy the pair at 1.2950 and you place a stop loss at 1.2940. This means that there are 10 pips at risk. With mini lots, a single pip movement is valued at £1, and your overall risk is £10. If you take out 10 mini lots, and you lose them, your total loss is £100 – 2% of your capital.
Remember we spoke of stop loss in earlier lessons? Always set a stop loss on all Crypto trades. This is your best defence against volatile markets.
The specific stop loss that you use depends on how much risk you are willing to incur. One trader may be comfortable with 10 pips, while another may have more leeway with up to 40 pips of movement.
I will explain the mechanics of this in greater detail in our technical trading sessions.
Feel free to ask any questions – I welcome your feedback!’