Stick to the plan: building a disciplined trading strategy

Crypto trading can be an exciting and potentially lucrative venture, but it's also risky — especially if you rush in blindly without a plan. A solid crypto trading strategy is crucial to success in this market. A trading strategy provides a clear action plan and helps to set boundaries that support one crucial trait for all traders to possess: discipline.

A strategy also allows you to make informed decisions based on data and analysis rather than emotions and speculation. Without a strategy, you may fall prey to FOMO and other emotional triggers, leading to impulsive decisions and losses.

Here, we discuss why a crypto trading strategy is so essential and provide tips on creating and sticking to one.

Choose your trading style

Before putting together your plan, you must figure out what sort of trader you want to be. This decision should align with your personality and risk tolerance. Although the following are general definitions of trader types, they'll provide you with a better understanding of who you might be and how that influences your strategy.

  • Day traders: As the name says, day traders buy and sell their crypto within the same day. They aim to make a profit from short-term price movements. Day traders typically rely on technical analysis to identify opportunities and make quick trades based on charts, price patterns, and indicators. They may open multiple positions at the start of their trading day and close them when they log off.

  • Swing traders: Unlike day traders, swing traders hold their crypto positions for a few days to a few weeks. Their objective is to make a profit from medium-term price movements. They use a combination of technical and fundamental analysis to identify trading opportunities and open positions based on trends, patterns, and news events. Swing traders may open multiple positions simultaneously and use stop-loss and take-profit orders to manage risk and exit positions.

  • Long-term traders: As you probably guessed, long-term traders hold their crypto positions for weeks, months, or even years, aiming to profit from the long-term growth of the crypto market. They use fundamental analysis to assess the future prospects of cryptocurrencies and invest based on technology, adoption, and competition. Sometimes they diversify their portfolio with several digital assets, and only adjust their positions periodically based on significant market shifts.

Building your plan

Putting together a crypto trading plan can be overwhelming and daunting, especially if you're new to trading digital assets. However, having a well defined strategy is essential for success in the crypto market. Here are some key considerations when building your trading plan.

  • Setting a budget: Only trade what you can afford to. By putting together a budget, you won't go in over your head and can trade comfortably. Consider starting off small and building up gradually over time.

  • Setting goals: Define your goals and objectives for trading crypto, such as target profit or the percentage return you want to achieve. You can also add learning goals, like learning about a particular blockchain or a new protocol.

  • Choosing your digital assets: Choose which digital assets to trade based on your goals, risk tolerance, and trading objectives. You may want to focus on the top cryptocurrencies by market capitalization or diversify your portfolio with smaller, lesser-known coins.

  • Risk management: Develop a clear risk management strategy that includes setting stop-loss orders, managing position sizes, and avoiding overtrading. Your risk management plan should also include guidelines for dealing with unexpected events, such as market crashes or sudden price movements.

  • Trading rules: Setting up clear rules for entering and exiting trades will help you maintain discipline and consistency in your trading approach. These rules are an important part of risk management and will help you adjust your strategy as the market evolves.

  • Technical analysis: Technical analysis can help you identify potential trading opportunities based on chart patterns, indicators, and trends. It can support the entry and exit points you set with your trading rules and reduce the urge to make emotional or impulsive decisions.

  • Fundamental analysis: As part of DYOR (Do Your Own Research), completing fundamental analysis can help you assess the long-term prospects of your digital assets. You can do this by evaluating technology, adoption, and competition, and analyzing news events and market trends.

  • Track your performance: Keep a detailed record of your trades, including entry and exit prices, position sizes, and profit and loss figures. As time goes by, this will help you evaluate your performance, identify areas for improvement, and adjust your trading plan as needed.

These steps will help you evolve on your trading journey, help you trade responsibly and learn new skills. You can start by practicing with us in demo trading mode, and no capital is required.