Dec 21, 2021
TIPS FOR CRYPTO TRADER
Are you trading in cryptomarket?
No matter what it looks like, good trading plans identify their edge before risking capital. Why start a business without a business plan?
Have a strategy before you plunge in with your hard-earned money.
Do you use stop-loss?
Do you jump in any trade given by signal groups?
Do you know what Financial analysis is?
Do you know what trading analysis is?
Do you use the OCO way of trading?
Are you updating your knowledge?
Are you watching coingecko and coin market cap?
Are you blindly investing?
What’s your trading strategy?
Do you spot trade, or scalp or future, options?
FACTOR 1. WHAT KIND OF SUCCESS RATE DO YOU HAVE?
DO YOU KNOW WHAT IS BAT RATE IS?
In trading, there are two variables that matter: Bat Rate, and Win / Loss.
► Bat Rate describes what percentage of the time a trade ends up as a win.
A trader with a 90% bat rate wins 9 out of every 10 trades.
► Win / Loss describes how big the average win is, relative to the average loss.
A trader with a 0.5 Win / Loss takes losses twice the size of his wins.
If you multiply these numbers together, you will get an “Expected Value”.
For example, a trader with a Bat Rate of 50% (wins half of the time) and a Win / Loss of 1 (Losses the same size as wins) is a perfectly “Breakeven” trader.
In order to make money in the long term, all you need to do is make the multiplication of these values be a positive value. The breakeven trader above only needs to win 51% of trades to begin making money if his W/L remains constant.
So, to get these numbers into positive “Expected value” territory, every good trading plan needs to devise a way to systematically find trading opportunities that it thinks have an edge.
- The inputs of this system are completely up to the trader, but they are typically rooted in Repeating price patterns,
- Fundamental observations,
- Macro trends,
- Other patterns falling wedge, rising wedge, breakout,
- Fakeout,
- Support resistance
- Trading cycles.
- Backtesting can be useful here for getting a general idea of whether or not an idea for a trading strategy has borne out to be true over time.
FACTOR 2. HOW ARE YOU AS A TRADER? ARE YOU AN EMOTIONAL TRADER?
This is the hardest element to quantify, but also arguably one of the most important pieces of a well-written trading plan — the ability to work around a trader’s individual strengths and weaknesses.
This is less important for banks and hedge funds, as decisions are typically made with oversight, but for retail traders, there is no one around to temper your personal flaws.
“You can do whatever you want! — but it’s a double-edged sword of responsibility that your trading plan needs to prepare you for.”
In short, you can best get an idea of where you are emotionally weakest by looking at your trading history. Nobody can do this for you, so it requires quite a bit of self-awareness. However, the rewards of removing emotional risk from a trading plan make it worth the effort.
All trading is based on fear. You need to understand which fear is stronger — the fear of missing out, or the fear of losing capital. Figure out which is stronger, and plan accordingly.
Just because you understand a certain strategy and other people make money trading it, doesn’t mean that you will be able to.
Executing with 100% consistency at 30% efficiency is more important than finding a strategy with 100% efficiency that you can only trade with 10% consistency. Make life easy on yourself!
FACTOR 3: Every good trading plan outlines risk.
Whether you have one thousand dollars or one billion dollars, ignoring risk is a sure way to experience massively increased monetary and emotional volatility, which can have a huge negative impact on long-term profitability. Here are a few simple-to-implement mechanisms that Banks, Hedge Funds, and Prop Firms use to reduce risk significantly — good trading plans don’t skip these.
Total Account Stop
Exactly what it sounds like: once you lose a certain percentage of your capital, you stop trading, liquidate your positions, and assess what went wrong. Only once you’re satisfied that you have fixed the issue are you allowed to re-enter the market. In the industry, this number is commonly 10%.
Per Theme Risk
This ensures that you aren’t too concentrated on a single “bet”, even if the bet is spread across multiple cryptos.
For example, if you own multiple web3, metaverse, Defi, Layer1, Layer 2 their performance will likely be correlated to some degree even if they have different products or services.
Whatever it looks like, including a plan for managing your risk is essential for *actually* managing your risk. If these plans aren’t written out and acted upon, they’re also a lot easier to ignore.
As I say, it is hard-earned money please be wise while investing it anywhere.
Have some knowledge and jump in trades.
MAY YOU TURN UP YOUR MONEY MULTIPLE X.
WRITTEN BY
CA RIDDHI JAIN
Treasurer Raipur branch of ICAI.
