What’s the Secret to a Successful Trading Plan?

With easy access to the best algo trading platform, becoming a trader is easier than ever. Analysing your next move based on real-time data will take you closer to more profitable trades. For guaranteed success, however, you need a trading plan that not only protects your next trade but also your entire portfolio. 

What’s your objective? 

Like most things in life, it’s important to understand what you want to accomplish as a trader or even on your next trade. The crypto market, for example, is highly volatile, and what you do based on current market conditions should be guided by a concrete objective.

• How do you want to profit based on what asset? 
• What tools and strategies are you going to use?
• Are you trading for the short-term or to buy and hold?
• What are your contingencies if your trade swings the other way?

If you want to profit from an undervalued stock, for example, your strategy could involve buying low and selling high. This means you might have to wait for weeks or months for the stock price to increase before you can profit from the trade. 

What criteria should go into your watchlist? 

Bitcoin is a popular cryptocurrency because of its profitability, but it’s also praised for its enhanced privacy and security. Attributes like these are some of the things that should go into your watchlist when choosing assets to trade. 

• Criteria can be broad or specific, depending on the asset class you want to trade. 
• Refer to your objectives when deciding on specific criteria to watch out for. 
• Your watchlist criteria may include both fundamental and technical factors. For example, you create a watchlist of stocks based on industry, a company’s financial performance, historical price movements, or debt-to-equity ratio.

What are your entry and exit rules?

Timing is everything when trading and investing, and knowing your entry and exit points right from the start can help you minimise risks, maximise potential profits, and reduce the possibility of making emotional decisions. 

• Figure out at which price point you buy a certain cryptocurrency or asset, and when to cut your losses. 
• Study and follow the markets so you can identify when values are predicted to drop or rise. 
• Always take a strategic approach when buying or selling assets. 
• Use technical analysis to identify probable entry and exit points. Some of the tools you can use for analysis include moving averages, support and resistance zones, and the relative strength index. 

How much are you willing to trade? 

This is the part where you consider position sizing and risk management to lock in more profits than losses. 

• As a general rule, risk no more than 2% of your account on a single trade. 
• Your portfolio should only have up to 10% of high-risk assets, such as equities, real estate, cryptocurrencies, and emerging markets. 
• Always ask yourself how much you’re willing to lose before trading anything. Stick to the 1% to 2% allocation per trade to be safe.

How much time can you commit to trading?

Trading can happen 24/7, especially if you trade in different markets with different time zones. But there’s more to trading than buying and selling. 

• Set a specific schedule for trading for consistency and commitment. It can be early in the morning, after work, or even during work, where possible.
• Schedule research, analysis, and education. You’ll make better decisions if you know the basics of popular cryptos at the very least. 
• Decide whether you want to make a lot of trades per day, go long, or use stop-limits. You have to spend considerable time with the first option, but not so much with the last two. 

In addition, you should routinely evaluate your training performance. Study your mistakes and areas of improvement, then adjust your strategies accordingly. If you’re ready to venture into algorithmic trading, Quanthedge AI has the solutions you need, custom or otherwise.