Capital Management and Trading Plan - Crypto Academy / S4W8 - Homework post for @lenonmc21.
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1 .Define and Explain in detail in your own words, what is a "Trading Plan"?
2 .Explain in your own words why it is essential in this profession to have a "Trading Plan"?
3 .Explain and define in detail each of the fundamental elements of a "Trading Plan"
Steemit greetings to all steem lovers.
Just like it is said failing to plan is planning to fail. Every venture in life requires survey, planning before execution. Farmers have to plan before the start of the year to be able to effectively execute the farming season. This goes same for most business people offering goods and services, even at the level of household management and proper planning is required to be able to run the home effectively. My dad has always told me before i go to the market i should ensure i write every item and the expected price i intend to see in the market.
Today cryptyo is gradually taking over and since 2008 the momentum in the crypto has been gaining more grounds than one could expect. Well by the then i did not know anything related to crypto but thanks to steemit i am gaining more insight.
Define and explain in details in your words what a trading plan is ?
A trading plan is a draft or an organised layout which entails to guide an individual in executing trading deals. Traders are expected to draft a trading plan before venturing into any trading venture. If not the outcome could be disastrous. Thus a trading plan for a trader will involve a time schedule ,the amount of capital to be stake within each trade, the amount of gain the trader expects and also the amount of lose the trader anticipate before each trade.
This therefore means that the trader is suppose to take a considerate amount of time to think, put that the plan in writing and if possible put the plan to teat in a demo account . If the plans work fine then the trader can go ahead and start executing trades. This entails total focus, and determination.
A trading plan of a trader will grossly depend on the trader’s objectives and the amount of trading capital.
Before i was introduced into crypto market all my friends told me was that you could invest this amount of money and by the end the day i could double it. This is just one of those flimsy words you will hear from crypto gamblers. I call them gamblers because they do not take time to invest in knowledge and analysing markets before taking action. They just jump into the market and expect whatever will befall them.
Explain in your words why it is essential in this profession to have a trading plan.
Setting rules or putting up trading plan in this profession is very important because of so many reasons;
First and foremost it is a great step towards protecting your trading capital. A trader, who ventures into trading without a plan, may lose his capital because there is no roadmap.
Also it is very vital to set up a trading plan to be able to track records .This will enable the trader know whether he is making progress or not. If progress is not been made the trader may start looking of ways to revise the trading plan.
Furthermore, a trading plan will guide the trader to know when errors have been made and corrections effected through the plan.
Explain and define in details each of the fundamental element of a trading plan.
For a trading plan to be effective, the trader must include these fundamental elements;
Time and Duration
Time is an important factor in any business venture. It is said time is always there but we need to match our schedules with the available time to be able to catch-up and be effective. You remember we cannot spend the whole day or 7 days in week trading, we need time to handle family issues also create time for the brain to relax and be become productive again.
A trader is suppose to choose the best time for trading and the duration he will take each day to analyse and execute each trade .Professor @lenonmc21 suggested 5 days per week and i also agree with him.
Capital management (building)
This is one of the most important aspects of a trading plan a trader cannot ignore .in fact this is the backbone for every trader, and the ultimate goal here is to maximise profit and minimise loss.
In this light the trader is suppose to guide his capital as if his life solely depends on it .In this light the trader puts all these into consideration,
The percentage of his capital he is ready to lose in every trade .many crypto traders and professors believe that new traders should always maintain a 10% rule. This means that for a trader with $100 capital should risk only 1% of this capital that is $1 and a trader with a capital $200 should risk just $2 . I believe if a trader is consistent with this strategy then he may like become a successful trader.
Expectant profit.
This is the amount of profit a trader is expects to win in each trade executed. Now this varies with the amount of capital you are staking. In fact if we are risking 1% of the capital then we should be expecting at least 2% win in each trade we execute. Since i clearly stated that i will want to open 6 trades ,i will be expecting at least 7 % returns for each trade. This simply means the proportion of your capital should be related to the amount of capital you have. The higher the capital the more profit you will expect and vise versa .
Risk management
A trader must make use of risk management skills. These skills will enable the trader keep records of the number of trades gained or lose. Any logical and economic trader will make sure the percentage of trades won should be more than the amount of trades lost if not you will be doing gambling.
A proper risk management strategy ensures that a trader sets the number of trades he expects to win per day and how many trades he expects to lose per day. Let us consider in my case where i will decide to set the amount of maximum 6 entries a day in the market. From this objective i decide to win 6 trades with the minimum lot sizes and lose 2. This therefore indicates that i will leave the market as far as i have won 6 trades and this goes the same if i lose 2 trades. This will be all for the day until the next day. This is aimed at ensuring that my capital remains partially unaffected.
Psychology consideration .
Trading is not a only a physical exercise where money is stake but also a mental exercise where the mind is fully involved, thus your moods and emotions must be kept on check all the time. Every trading decision you take at any particular time must come from a sound and up right mind. So in this light before you go for an entry make sure;
-You are in the right frame of mind,
Do not rush into the market because of sentiments and propel analysis must be done before any entry ,
Carry out any task you have at home or elsewhere before commencing trading this will give you a focused mind in the market
Greed is a big factor that has grounded many traders including myself; we must therefore stick to the plan initially drawn and follow rigorously.
Do not take revenge on the market, just because you did not win a trade, you decide to stay longer in the market to cover up this could be risky. We must try to control our emotions as much as possible,
And also importantly we must decide to follow the written plan ,
Last but not least , we must we find a suitable time to trade ,professor @lanonmc2 suggest morning hours to be the best time to trade and i think i totally agree . This is because your mind is fresh and you will make very sound decision.
Practice (Remember to use your own images and put your username)
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 your own images to make 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.
Remember the plan you build should have the following:
Following my trading plan as drafted in the screenshot below i will prefer to start with a trading capital of $200. This will give me a better leverage and coverage in the market .this will cover a period of six months and as indicated already i will take a risk of 1% for each day, and i anticipate a profit of 3% of my invested capital as seen in column 3.
I basically trade for 5 days in a week making 20 days in a month; my anticipated profit in a month is indicated in column 4. While the total profit made in column 5 will be brought back as plough back profit this will automatically increase my profits and give me a better stand in the market.
Screenshot from microsoft word2007 , done and imported from excel 2007 by @breeze.com
(The cropped version was not very clear)
As already indicated above with regards to the rules or psychology i will ensure ;
I will trade when i am in the right frame of mind,
I won’t rush into the market because of sentiments and propel analysis must be done before any entry
Carry out any task i have at home or elsewhere before commencing trading this will give you a focused mind in the market
Greed is a big factor that has grounded many traders including myself; i must therefore stick to the plan initially drawn and follow rigorously.
I will like to take revenge on the market, just because you did not win a trade, you decide to stay longer in the market to cover up this could be risky. We must try to control our emotions as much as possible
And also importantly i must decide to follow the written plan ,
Last but not least we must i find a suitable time to trade ,professor @lanonmc2 suggest morning hours to be the best time to trade and i agree because you get up with fresh ideas and a sound memory .
This course has been an eye opener to me. I had commenced trading without this knowledge and i lost my capital more than trice. I now understand how to manage risk, control my cspital , set a plan which i must follow rigourously .Special thanks to Professor @lanonmc2 for providing special materials for this task.I am enriched.