Capital Management and Trading Plan - Crypto Academy / S4W8 - Homework post for @ lenonmc21 by @okunlolayk

in hive-108451 •  8 months ago 

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What is a "Trading Plan"?

Trading Plan is a researched and written rules that guides one as a trader. In the Cryptocurrency ecosystem, a trader is one that engage in exchange of valuable assets; in this case cryptocurrencies. The concept of trades generally is about buying and selling of goods (assets) in a market. Trading cryptocurrencies works like a barter system whereby one trader tender one cryptocurrency token in exchange with another trader for another cryptocurrency token.

The Cryptocurrency ecosystem has been flooded with a great number and varieties of cryptocurrency tokens which opens an avenue for people to take advantage of the market and make profit by trading them. The volatility of these cryptocurrency makets even gives room for traders to make huge profits or maybe losses if tides go against them.

However, trading cryptocurrencies is technical and psychological. Like a conventional market, you make the best of your trades when you understand the rudiments of it's market and you are crystal clear of what you want from the market. The main determinant of your performance in the market is your preparation before entering the market. In some cases trades can be illusional, you can be making trades but unknown to you, your trades are making losses.

However, a trading plan is employed as a guiding rules for decision making in the market. Expert of commerce would advice not to enter a trade/market without a plan. A good trading plan would work well for active day traders who make their trades on daily basis, swing traders that chose to have their trades active over days as well as long term investor that chose to hold their assets for a long period of time. Moreover, whatever type of trader one is, a trading plan is a personally drafted rule that is suitably tailored to one's goals and objectives in the market as well as one's trading psychology and mental health.

Basically, a trading plan would cover an outline of:

  • When you enter or exit the market. That is knowing your strategy or signal that calls you to enter or exit the market.
  • What type of assets you wish to trade; Low valued assets, assets with large market capitalization, assets with large trading volume per time, highly volatile assets and so on
  • How large you wish to enter; what's your capital investment per trade, whether going all in one or having your capital spread across a number of trades per time.
  • How long you wish to stay in the market; a day, days/week, months, long term or till retirement.
  • And as much as one can personally define to suit ones objectives

Why it is Essential in this Profession to have a "Trading Plan"?

Generally, every business sector, career or prospects essentially requires a well defined written plan to progress and makes profit in the long run. When trading without a plan, the trader makes himself susceptible and vulnerable to the psychological swing of the market. You become a passive victim of the market rather than being an active determinant of the market. A trading plan helps to identify and define your personality in the market. It helps maintain risk management in trades, capital management and psychological management in trades.

A trading plan also helps to have a well coordinated portfolio and promote ease to track ones trading events over time. Having followed an outlined trading rules one can easily track the length of one's profit or loss. And this can be used as a feed back check to know whether the trading plan is making profit or needs to be scraped.

Fundamental Elements of a "Trading Plan"

The fundamental elements of a Trading Plan includes;

  • Risk Management: Risk management is the component of A trading plan that controls how vulnerable one is to the tides of the crypo market. A predetermined risk management strategy would indicate the specific number of trade you wish to open per time and the indicator to close them whether by wins or loss.
    Having this would prevent being overexposed to the market.

  • Capital Management: capital management is the component of A trading plan that helps to control one's investment. It helps to define the percentage of capital one is willing to lose in hope to make profit in the market. When trading, a trader is risking his capital to the volatility of the market. A predetermined capital management strategy would indicate the percentage loss limit as well as the percentage gain limit per trading session. This helps to keeps one's loss of capital at minimum while taking risk to make profit in the market.

  • Trading Psychology: A trading plan with trading psychology component helps to maintain a healthy psychology and feel safe emotionally even when things are going bad in the market. For example a trader might not feel bothered even with a sharp bear in market because he knows he already has a stated limit to his loss (especially when using the Limit or Stop Loss function of the trading platform). This helps him to be rest assured of his capital and emotional balance.

  • Planning and control of our Trading account:
    It is necessary to keep track of one's trading out as one execute his or her trading plan. This would help the the trader determine his aggregate gains over the month or longer. This would help verify the profitability of the plan at hand and if it is effectively working to the predetermined objective. Using a spreadsheet would make such task easy.

Building a Trading Plan

To draft out one's Trading plan one has to consider some personal factors such as Goals and Objectives, Time management and Knowledge of the crypto ecosystem and trading platform in use. I wish to make instant gains on trades daily by taking advantage of the volatility of the market and at the same time I am trading part-time as I have other activities I engage in such as work and study. This restrict me to only use a fraction of my time in the market and take advantage of the automated functions such as Price Alert, Limit, Stop loss and OCO (one cancel the other) available on a Binance centralized exchange platform.

Risk Management

The first rule of my risk management strategy is the "Don't Put all your eggs in one basket". As a day trader I choose to take the market by entering five trades with the hope of making profit of all. This five trades are selected based on their current gaining performance. I make selection from the top market gainers. I'm a fan of "Follow the Upward Trend". The five trades have a span of 15 hours after which I pull out of the market regardless of their potential performance before or in the next minute. I use authomated function such as OCO on Binance so I can place my Limit price and use the stop-loss at the same time. These trade orders could be executed within the 15 hours span or automatically called off.

My Risk Management Can be Summarized as follows;

  • Pick Up Five Gaining trades By 6am
  • Make authomated OCO sell order
  • Take Break (off to work)
  • Check performance by 9pm and cancel pending orders and exit the market.

Capital Management

I go into market with a 3-1 profit loss ratio. Going to the market with $100 (100%) with the hope to make additional profit of $3 (3%) or lose less than $1 (1%). Incorporating this into my outlined risk management strategy, I have my 100% capital evenly distributed across 5 trades with maintaining 3-1% profit-loss ratio for all.

Trading Psychology
  • Follow the Upward Trend
  • Stick to Five trades in 15 hours
  • Give your trade unsupervised performance; Use auto and not check until after 15 hours
  • Call of pending order regardless of performance
  • Go off the market till the next cycle (morning)
  • Funds are locked (no withdrawal until target date)

A Table with the Strategic Planning of my Capital, covering 6 months.

MonthCapital1% loss3% GainAverage Profit 2%Total Gain in 30daysNew Capital

The table above shows a 6 months trading account. With an initial capital of $1000, and following the trading plan as outlined earlier. On a 3-1% Profit-loss ratio and an average expected daily income of 2% per capital, it is expect that the $1000 initial income would yield a return of $13,572 in six months. This is about 13.5X (1350%) yield.


It is advisable never to go into a trade without a plan. It's like going a tour without a guide, you can end up anywhere. This trading plan is what guides traders through their trades and decisions making. Don't have plans in your head, have them in black and white an place where you see them as you trade. It is also advisable to adhere strictly to the plan, breaking the codes is no better than not making one at all. Consistent market research, Discipline and commitment is paramount to making the best out of a trading plan. If the trading plan fails to produce the expected results feel free to adjust based on your finding or even scrap it.

Cc: @lenonmc21

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Best Regards!!

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