Even in a very volatile and noisy market, having a good plan helps you stay calm and trade as you have predetermined. However, this is easier said than done; for different reasons, many traders do not follow their trading plans or have none, thus exposing themselves to losses. Here we will focus on the factors that cause traders to abandon their pre-determined trading conditions and how to overcome them.
What is a crypto trading plan?
Your crypto trading plan is an organized structure that guides your trading decisions in the crypto market. It is more like the rules you have chosen to trade. These rules guide your market decisions as they contain information on what to trade, when to trade, why to trade, and how to execute trades.
The main problem for many young traders starts when they start ignoring their working strategies for different reasons. We will look at some of these reasons in the next section.
Reasons traders have trouble sticking to their trading plans
Now let’s see why traders find it difficult to follow their trading plans.
1. Too much confidence or loss of confidence
Being overconfident can lead a trader to believe that he is already good and knows the market well. Because of this, he stops following his trading plan. Many inexperienced traders can become overconfident when they have a winning streak. This could cause them to forget their risk management plans and take higher risks than they originally planned.
On the other hand, having a series of losing trades or staying in a loss for a long time can cause young traders to lose confidence in their trading strategies. The trader may start thinking that his strategies are not good enough and he needs to adjust them. Some even give up on strategy in search of the “perfect” strategy. Trying to do this leads them to more losses.
2. Being distracted by what other people are doing
Newbie traders can easily get distracted by what other traders are doing. These traders can start following the trading thoughts and ideas of other crypto traders in different forums, using them to make decisions without any major convictions.
Before trading, you should perform different types of analysis and track the results. Trading based on what other people say will only lead to more losses since you may not know the idea behind the strategy or the best way to handle the trades.
3. Lack of compatibility with your plan
Different types of trading styles fit better with different personalities and schedules. If your trading plan and strategy doesn’t match your personality, you will find it difficult to follow your plan. Some traders can’t handle the idea that they have pending trades or long-term investments, but want to see the result immediately; these traders can do better with short-term strategies. Long-term strategies may work for you if you have a busy work schedule.
A trader who does not like to take risks may not want to trade derivatives or other leveraged trading, but may prefer options such as spot trading, P2P trading or other no-effect trading. of leverage.
4. Not having a clearly defined plan
You will struggle to have a structured way of trading if you don’t have a clearly defined plan. Not having a plan just makes you jump into trading every opportunity you see. Traders who do this do not have consistent results.
5. The market is always open
The market is open 24 hours a day, every day of the week. However, trying to catch every move can get tiring. There are times in the market when there is little or no trading activity. It could also be that the trader has been sitting in front of the chart all day and couldn’t find his setup. Such a trader may start to force trades and deviate from his plan. They begin to accept trades that they would not normally accept. Such impatience drives them to make impulsive decisions.
You can easily lose focus when exhausted and tired, reducing your overall efficiency. Not getting the necessary rest can cause you to deviate from your trading plan. It is always better to stay on the sidelines and not execute trades when nothing is happening than to execute trades and make mistakes.
6. Emotional trading
This is the worst that can happen to anyone trading cryptocurrencies. Trading by emotion means that you only trade on impulse without any clear trigger.
These sets of traders are affected by various trading psychology. They are afraid of missing trading opportunities, so they jump into trades too early or when they haven’t seen their setups yet. Sometimes they have doubts, and even with a clear setup they find it difficult to enter for fear of loss.
Emotional trading also makes you exit winning trades too early to secure the profit and stay in losing trades too long, hoping the trade will reverse. All the actions described above resulted in significant losses for many people.
How to stick to your trading plan
The following practices can help you stick to your crypto trading plan.
1. Thoroughly test your strategy and stick to it
There’s no way to know if your strategy is working or not if you haven’t tested it thoroughly. Backtesting is very important for developing an effective trading system.
During backtesting, you test your strategy through historical data to see how it works. The idea behind backtesting is that any system that has worked well in the past is likely to work well in the future. On the other hand, any system that does not perform well when tested on past data is unlikely to perform well in the future. When you put your strategy through a thorough backtesting process and the result is positive, your confidence in such a strategy increases.
2. Have a clearly defined trading plan
Your trading plan should be defined around your strategy. This will help you approach the market in a more structured and systematic way.
Your trading strategy should include whether you will be trading long or short, what will prompt you to execute and exit trades, your risk/reward potential, your money management and trading rules, and the (s) best time(s) to trade (in the case of short-term transactions). Because the market is open 24 hours a day, it doesn’t mean you have to trade that long.
3. Stop following the herd
There is a tendency to follow what everyone says or does when trading cryptocurrency. It gets worse for newbies when they belong to a forum where people share their thoughts on a crypto asset.
It’s not bad to have someone you follow, but trying to get everyone’s thoughts on where to enter a position and where to exit and making trade decisions around such thoughts is always wrong.
4. Stay disciplined
You will always have times when you want to trade outside of your plan. You want to take bigger positions or are so confident in a position that you just want to double your account with such a move. Such a period can be a good time to stay away from commercial and trade-related activities.
Every trader needs discipline, and unfortunately this is one of the hardest things to maintain while trading. Only a disciplined trader will not follow what everyone says unless it also matches their trading plan and strategy. It also takes a disciplined trader to have a clearly defined trading plan and stick to it.
A good strategy has ups and downs
You only expose yourself to losses when you don’t stick to your trading plan. A good strategy has its ups and downs; there are times when it works well and seems like the best thing in the world and other times when it might even look like the worst strategy ever. The average trader will change their strategy each time they experience a losing streak, leading to more inconsistent results.
Make sure you test your strategy well to make sure it works, make a trading plan based on the backtesting result and stick to it throughout. The strategy will have winning streaks and losing streaks, but with a good risk/reward ratio you will always be good.