The Complete Guide to Building Bitcoin Trading Plans in 2021

how to build bitcoin trading plans

Trading Bitcoin successfully isn’t exactly easy. Not only is there a good deal of risk involved, but, because Bitcoin is so loosely regulated, it carries with it a great deal of volatility. 

For this reason, if you’re interested in trading with Bitcoin, you need to first devise a trading plan. A trading plan will help reduce the stress associated with the process, and will also provide a template upon which you can trade logically. 

In this article, we’re going to get into the specifics of building Bitcoin trading plans, showing you not only the factors that influence the Bitcoin trading process but different trading plan options and more. 

The Benefits of Having a Trading Plan in Place

Devising a training plan isn’t just busywork. It’s a vital part of trading Bitcoin, one that offers up a variety of benefits. These benefits include:

1. The ability to monitor the performance of your bitcoin trades

Perhaps the biggest benefit of devising a trading plan is that it provides you with the ability to monitor the performance of your Bitcoin trades. This is vital, as it enables you to make informed decisions about future trades, giving you the best possible chance at success. 

This comes down to the control that a trading plan gives you. It creates an environment in which you can easily measure your trades and results. Were you to trade without the help of a trading plan, none of your trades would share any similarities, and therefore would be difficult to compare against one another. 

Now, this isn’t to say that your trading plan will prevent you from ever switching up your strategies. You can still experiment with different tactics. However, your trading plan will prevent you from going totally rogue, ensuring that your trades are based, more or less, on proven methods. 

2. Low-stress trading

When you first start trading Bitcoin, you’re bound to experience a whirlwind of emotions. The high volatility of the market will have you feeling elated at one moment, and desperate at the very next moment. This pushing and pulling of moods can cause a new investor to do silly things, like sell too early, buy too much, or otherwise. 

This is where a trading plan can come in handy. A trading plan helps you establish a set of rules for yourself, thus keeping you aligned with your short and long-term trading goals. In essence, a trading plan helps you keep your emotions in check, allowing for low-stress and strategic trading. 

  1. Risk management

You will, at some point, get the short end of the stick during a trade. This is inevitable. What’s really important is that you don’t take any major losses. 

A trading plan will help prevent this from happening. See, any good trading plan includes risk management criteria. Whether this criterion designates that you stop trading after a certain severity of losses or whether it prevents you from making high-risk, high-reward trades, it will help to keep your boat steady, so to speak. 

Trading without the help of risk management criteria leaves you vulnerable to making impulsive deals. While impulsive deals might work out every once in a while, generally speaking, they’re going to fail miserably, leaving you feeling desperate and hopeless. 

Popular bitcoin trading strategies to consider

As a newbie to Bitcoin trading, you’re advised to choose a popular trading strategy that’s seen success in the past. This will get you started out on the right foot. Eventually, once you’ve got some experience under your belt, you’ll be able to incorporate some of your own strategies, helping you increase your returns at your local Byte Federal Bitcoin ATM. 

One method for trading is day trading. This involves trading between the hours of 9:00 AM and 4:30 PM and very rarely holding a position past this range.

Another method is scalping. This involves trading every few minutes as a means of capitalizing on rapid fluctuations. 

Then, there’s swing trading. This involves holding a position for a period of days or even weeks and changing that position only as a response to trends in the market. Position trading is the same but includes holding for weeks, months, and years as opposed to days and weeks. 

In your early trading days, it’s best to avoid day trading, as it requires a great deal of monitoring. Unless you can turn it into a full-time job, it’s going to be difficult to facilitate. 

The steps involved in creating a bitcoin trading plan

Now, we can move on to the main attraction: the actual act of creating a Bitcoin trading plan. Generally speaking, it involves doing the following. 

1. Establish goals

First and foremost, you should establish goals for yourself. If you don’t set goals, you’ll have no end destination, and will likely trade aimlessly based on your ever-changing whims and emotions. 

First, determine how much of your portfolio you’ll invest in Bitcoin. Generally speaking, you shouldn’t put any more than 3% of your portfolio toward cryptocurrency. Note, though, that as a new trader, you should probably start around 1.5%. 

Next, determine the type of return you’re hoping to get on your investment. Bitcoin returns are extremely volatile. As such, we recommend determining a monthly goal ROI. Setting short-term goals such as these will keep you steady, and ensure that you don’t take any unnecessary gambles. 

2. Choose an approach

Next, you’re going to want to choose a trading approach. We discussed some approaches above, each of which has seen success in the Bitcoin trading world. Choose one that feels comfortable to you and study up on it as much as possible. 

Again, some of the approaches available to you include day trading, scalping, swing trading, and position trading. 

3. Designate trading periods 

It’s also important for you to designate specific trading periods. Not only will this prevent you from taking too many chances, but it will also help you choose an appropriate approach. 

When you’re just getting started, you should keep your trading hours to a minimum, surpassing no more than 2 hours in a single day. As you progress, you can step your game up, and, if you have time, trade for 4 to 5 hours a day. 

4. Set up a trading journal 

The next step is to set up a trading journal. This will help you track your trading so that you can make informed changes in the future. The more precise you are in tracking your progress, the better moves you’re bound to make. 

Not only should you write down the times at which you make trades, but you should also note how much you traded and what the market was at when the trade went through. Be as precise as possible when recording this data and it should help you to learn from your mistakes. 

5. Devise an analytical strategy 

Analyzing Bitcoin trades is a complex and intensive task. As such, you can’t just wing your analysis. You need to devise a stringent analytical strategy and then facilitate it as accurately as possible. 

Fortunately, there is a great deal of tracking software available to help you with this task. Some of the most prominent examples of this software include Blockfolio, Coinstats, and Cryptowatch, to name just a few. 

6. Assess risk management 

The last part of building your trading plan should be to assess risk management. We discussed risk management a bit above, explaining that it prevents a trader from making grave mistakes. 

Now, what goes into risk management? It’s all about gauging risk and reward as they pertain to specific trades. 

Some traders will pick a percentage of their portfolio and then ensure that they don’t trade anything over that percentage on any one trade. 3% of the total portfolio is a popular choice. 

Other traders will establish risk-reward ratios for their trades. So, they might decide on a 1:3 risk-reward ratio, meaning that, if they risk $10, they have the potential of getting $30 back on the return. If the potential was only 1:2, on the other hand, they would refrain from making the trade. 

You could also set rules on losses. So, if you lost on, for example, 4 straight trades, you could decide to slash your budget by 50%. 

You don’t have to follow the same guidelines as everyone else, but you should have guidelines in place. Trading Bitcoin shouldn’t put you in a poor house. At the very worst, it should produce small losses; at the very best, it should produce huge gains. 

Building Bitcoin Trading Plans is a Vital Part of the Process

Building Bitcoin trading plans isn’t optional. If you want to make steady Bitcoin trading profits, it’s a necessity. So, put this guide to good use and devise a plan that caters to your strengths and your needs. 

On the hunt for other Bitcoin trading tips? Our website is the place to be. Check out some of our other articles right now! 

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