- Define and Explain in detail in your own words, what is a "Trading Plan"?
TRADING PLAN:
A trading plan is a plan that describes how to trade. Whenever you are going to start any business the first thing which is most important is the Business Plan same as for trading if we start our work without the trading plan then you have to face harm. Basically, the Trading plan is the backbone of any business or trade which we are going to start. Without a proper trading plan, we might get profit in the beginning but it is not long-lasting after some time we have to face harm in your business.
Basically, the trading plan is a roadmap for your business or how to trade? A trading plan is the basic set of rules that include all the important points and conditions on the basis of this a trader will decide to trade. A trader will take an operation when these conditions (Trading plan) are fully met. In case if the conditions are not fulfilled and the trader takes an operation it will affect our investment.
In cryptography, the trading plan is the key to success defined as the set of rules that we organize to control our capital. Many traders end up getting ruined because they trade without a proper trading plan. We have to remember certain conditions and on the basis of this, we will buy or sell. A good trading plan includes everything capital’s objective, what is our risk and when we have to trade. We have to remember these plans in order to carry out our strategy we should also keep in mind our capital and depending on our capital we should decide how much we have to invest.
2 .Explain in your own words why it is essential in this profession to have a "Trading Plan"?
Trading in cryptography is very important because it will help traders have a better chance of success. Due to the changeability of this market, the trading plan is very important. Remember that if we start trading without a plan we will face harm. There are some prime reasons why the trading plan is important. They are given below:
• Easy to Trade: A trading plan makes trading easy. We can easily trade without any worry because we properly manage capital and risk.
• Money Management: It is the most important factor of the trading plan because it enables traders to exclude the emotional and psychological view and to make money to deep-rooted. With proper money management, you can remain long in the market and can more profit.
• Traditional goals: A trading plan will help a trader to stay focus to achieve the goals which were set in the trading plan.
• Fewer Chances of Mistakes: Because of proper trading plan will help traders to keep away from serious mistakes in trading.
• Time Frame: It is most essential to decide the time frame because the longer the timeframe there are more chances of success.
• Risk Management: With a proper trading plan the trader can oversee the risk and can get maximum profit. The main purpose of trading is to get profit and without a trading plan, we cannot achieve the maximum profit.
When we want to achieve something in our life we will set some basic rules first and by following these rules with consistency we will achieve our goals Same as in trading the trading plan is the key to success. So the trading plan is very important without it the traders cannot manage the risk factors. A good trading plan brings more profit so we should follow the plan which brings more profit and minimize the chance of losing money.
3 .Explain and define in detail each of the fundamental elements of a "Trading Plan"
In order to make a good trading plan which helps traders to control their capital, there are four fundamental elements. They are given below:
1. Risk Management:
Risk Management is the major part of the trading plan when the trader enters the market his capital is in danger he will either get profit from it or will lose it. In order to control losses, the traders must manage the risk management so they will know that how the amount of loss they can bear. With risk management, the trader can decide when to win a trade or when to stop the trade.
Let consider an example of the traders who have the plan to get the profit of $50 and will stop trade when the loss is $5 so when they achieve their profit of $50 so they need to stop the trade otherwise they will lose capital or if they loss $50 they also need to stop the trade
In brief risk management minimize the effect of loss and enhance the effect of profit
2 . Capital Management
Capital Management is used to keep a hold on our capital percentage that we can bear to risk in trading. Capital Management is also the main factor of the trading plan because of this we will calculate the amount of risk of loss. When the traders enter the market they are risking their capital so there is a certain percentage they are willing to lose. There are two percentages in capital management the percentage of profit and the percentage of loss always try to keep your percentage of profit greater than your percentage of loss. If the traders are risking 1% so they should set their aim to gain 3% profit on their capital.
3 .Trading Psychology
Trading psychology is the emotional psychology of the traders. In the crypto world, We all want to get a high profit but the risk amount is also high so first, we should take control of our emotions while trading. Because of our emotions control us this can make us lose money but if we follow some rules, the risk will be reduced. Some rules are given below
• Set your profit and loss percentage and when you achieve your target quit the market.
• Don’t take decisions emotionally while you are trading.
• Don’t do revenge trading because it will lead to more losses.
• When you achieve your target stop the trade don’t let greed manage our trade
4 .Planning and Control of our trading Account
Planning and controlling are also important. We should control our capital in such a way that will result in rising in our capital. It is all about managing our monthly money
For example, I want to invest 50$ and I also set the profit and loss percentages as 1:3 ratio means I want to earn 3% profit on my investment and if I get 3% profit now my investment would become 51.5$ now I will invest 51.5$ instead of 50$ and if I get loss of 1% so my investment would become so now it becomes 50.985$. still greater than my first investment.
4 .Build a “Trading Plan” and cover all the basic elements discussed in the class. For this, you should NOT take the examples that I put in my class (Including the example amounts), use your own examples and own images to make a said plan, you must also base this "Trading Plan" as if you were operating on the platform of "Binance", taking into account that the minimum amount of exchange or investment is $ 10.
| Month | CAPITAL | % LOSS | % PROFIT | 24 DAYS PROFIT | CAPITAL+PROFIT |
|---|---|---|---|---|---|
| 1 | 60$ | 0.6$ | 1.8$ | 43.2$ | 103.2$ |
| 2 | 103.2$ | 1.032$ | 3.096$ | 74.304$ | 177.504$ |
| 3 | 177.504$ | 1.775$ | 5.325$ | 127.802$ | 305.306$ |
| 4 | 305.306$ | 3.05$ | 9.16$ | 219.82$ | 524.82$ |
| 5 | 524.82$ | 5.24$ | 15.74$ | 377.87$ | 902.70$ |
| 6 | 902.70$ | 9.02$ | 27.08$ | 649.9$ | 1552.63$ |
COLUMN :1
The months 1 through 6 are listed in this column.
COLUMN 2:
This section offers a list of capitals that begin with the amount $60. I started with this $60 money since the Binance trading platform requires a least of $10 to trade, and using exactly $10 is dangerous because a loss of even 1% will prevent the deal from continuing.
COLUMN 3:
This column contains my 1% loss in percentage. This 1% helps to keep losses to a minimum. I can only afford to lose 1% of my cash with this.
COLUMN 4:
This column contains my 3-percentage-point gain. With a loss-to-gain ratio of one to three.
COLUMN 5:
My 24 days profit is listed in this column. As a result, it's clear that I'm trading six times a week, as cryptocurrency trading has no restrictions, unlike the Forex markets, which closes on weekends. The profit is calculated by adding together the daily earnings of 3% on my capital over the course of 24 days.
COLUMN 6:
This column shows the monthly profit, which is calculated by adding the 3% daily earnings to the beginning capital for the month.
CAPITAL MANAGEMENT:
My capital is controlled by setting a percentage loss of 1% and a percentage gain of 3%. This implies that whenever I lose 1% of my trading money, I abandon the deal. At the same time, if I make a 3% profit on my investment, I seal the deal.
I utilize the "stop-loss and take profit" set at a ratio of 1:3 to correctly maintain the stated percentages.
RISK-MANAGEMENT:
We're going to perform a day trading in the market, which means we'll try to trade every day, at least Monday through Friday, and I'll just do one operation each day to reduce risk. I'll seek for the greatest possible signal from my trading method to get a single deal that allows me to turn a profit, and if the operation finishes in a loss, I'll still exit the market.
TRADING RULES:
The most essential thing is to stick to the trading strategy we've devised, which we'll be able to do if we retain a positive mindset. We can have a wonderful plan to execute in the market, but if we don't have decent psychology, we'll be doing things differently from what we've written down in our rules and regulations, whether or not we're trading.
To prevent losing concentration, make sure you're in the appropriate state of mind before you start trading. You should oppose trading for others, prefer to move at your own tempo, and stick to your objectives without being forced. Always make sure that You stick to your risk and capital management trading decisions since this helps you avoid greed and vengeance trading. In order to prevent multitasking when trading, also make sure you finished with other tasks You need to accomplish before trading. To avoid making quick selections, You constantly make sure you are not under pressure while trading. Furthermore, avoid trading with borrowed funds because the fear of losing money is considerably greater, and this has a negative impact on one's emotions. Every other trader has losing streaks, and it's very common to have a month's worth of losses, if not more.
CONCLUSION:
Cryptocurrencies are known for their extreme volatility, which makes cryptocurrency trading a dangerous endeavor. However, these risks may be mitigated by using an appropriate trading strategy.
A trading plan assists traders in developing a good and lucrative trading strategy, which aids in the growth and control of the trader's trading account. A trading strategy that aids traders in risk and capital management provide traders a better chance by lowering their rate of trade losses and increasing account capital growth. The trading strategy, which is the cornerstone for strong and good trading, should be in sync with our emotional state, and we should do everything we can to stay disciplined in terms of sticking to and maintaining our trading plan without being influenced by our emotions.
Special thanks to Professor @lenonmc21