Even in a highly volatile and noisy market, having a proper plan helps you stay calm and trade as you predetermined. Still, that’s easier said than done; for various reasons, many traders don’t follow their trading plans or don’t have one, which exposes them to losses. Here we will focus on the factors that lead traders to abandon their predetermined trading conditions and how to overcome them.
What is a Cryptocurrency Trading Plan?
Your cryptocurrency trading plan is an organized framework that guides your trading decisions in the cryptocurrency market. Rather, it is the rules you have chosen for trading. These rules guide your market decisions as they contain information on what to trade, when to trade, why to trade and how to trade.
The main problem for many young traders starts when they start ignoring their working strategies for different reasons. We’ll look at some of these reasons in the next section.
Reasons why traders have a hard time sticking to their trading plans
Now let’s look at the reasons why traders find it difficult to follow their trading plans.
1. Overconfidence or loss of confidence
Overconfidence can lead a trader to believe that he is already good and knows the market. Because of this, he stops following his trading plan. Many inexperienced traders can become overconfident when they have a winning streak. This can cause them to forget their risk management plans and take on greater risks than initially planned.
On the other hand, having a series of losing trades or staying at a loss for a long time can cause young traders to lose confidence in their trading strategies. The trader may start to think that his strategies are not good enough and that he needs to change them. Some even go so far as to abandon their strategy in search of the “perfect” strategy. Trying to do so leads them to further losses.
2. Being distracted by what other people are doing
Novice traders can easily get distracted by what other traders are doing. These traders may start following the trading thoughts and ideas of other cryptocurrency traders in different forums, using them to make decisions without great conviction.
Before trading, you should perform different types of analyzes and track the results. Trading based on what others say will only result in more losses, as you may not know the idea behind the strategy or the best way to manage the trades.
3. Lack of compatibility with your plan
Different types of trading styles are best suited to different personalities and schedules. If your trading plan and strategy don’t match your personality, you will find it difficult to stick with your plan. Some traders can’t stand the thought of having pending trades or long-term investments, but want to see the result immediately; these traders may be more successful with short-term strategies. Long-term strategies may be best for you if you have a busy schedule.
A risk-averse trader may not want to trade derivatives or other leveraged trades, but may prefer options such as spot trading, P2P trading, or other non-leveraged trades.
4. Not having a clearly defined plan
It will be difficult for you 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 with 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 keep up with 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 has not found his setup. Such a trader can force trades and deviate from his plan. He begins to take positions he wouldn’t normally take. Such impatience leads them to make impulsive decisions.
You can easily lose focus when exhausted and tired, reducing your overall efficiency. Not taking the necessary rest can cause you to deviate from your trading plan. It is always better to sit back and take no trades when nothing happens than to take trades and make mistakes.
6. Emotional trading
This is the worst that can happen to anyone trading cryptocurrencies. Trading on emotion means that you are only trading on impulse without any clear trigger.
These groups of traders are influenced by various trading psychology. They are afraid of missing trading opportunities, so they enter trades too early or when they haven’t seen their setups yet. Sometimes they have doubts and, even with a clear setup, find it difficult to get into the game for fear of losing.
Emotional trading also causes you to exit winning trades too early to secure your profits and hang around in losing trades too long, hoping the trade will reverse. All of the above actions have resulted in significant losses for many people.
The following practices can help you stick to your cryptocurrency trading plan.
1. Thoroughly backtest your strategy and stick with it.
There is no way to know whether or not your strategy works unless you have tested it thoroughly. Backtesting is very important for developing an effective trading system.
In backtesting, you test your strategy against historical data to see how well it performs. The idea behind backtesting is that any system that has worked well in the past is likely to work well in the future. Conversely, any system that doesn’t 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 that strategy increases.
2. Have a clearly defined business plan
Your trading plan should be built around your strategy. It will help you approach the market in a more structured and systematic way.
Your trading strategy should include whether you plan to trade long or short, what will motivate you to enter and exit trades, your potential risk/reward ratio, your money management rules and timing for trading, and the The best time(s) to trade (in the case of short-term trades). The fact that the market is open for 24 hours does not mean that you have to trade during this time.
3. Stop following the herd
There is a tendency to follow what everyone says or does when trading cryptocurrencies. It gets worse for newbies when they belong to a forum where people share their thoughts about a cryptocurrency.
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 it and make trading decisions around those thoughts is always wrong.
4. Stay disciplined
You will always have times when you want to trade outside of your plan. Do you want to take bigger positions or are you so secure 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 trading and trading 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 expose yourself to losses if you don’t stick to your trading plan. A good strategy has ups and downs; there are times when it works well and feels like the best thing in the world and other times when it might even feel like the worst strategy. The average trader changes his strategy every time he experiences a losing streak, leading to more inconsistent results.
Make sure you fully backtest your strategy to make sure it works, create a trading plan based on the backtest results and stick to that plan until the end. The strategy will have winning streaks and losing streaks, but with a good risk/reward ratio you will always be good.