6 Reasons Crypto Traders Don’t Follow Their Crypto Trading Plan and How to Overcome Them
Reading Time: 5 minutesSticking to a crypto trading plan can be difficult. Be aware of common reasons and ways to overcome them to stay on track.
Even in a highly volatile and noisy market, having a proper plan helps you remain calm and trade as you have predetermined. However, it is easier said than done; for different reasons, many traders don’t follow their trading plans or do not have any, setting themselves up for losses. Our focus here will be on the factors that lead traders to abandon their predetermined trading conditions and how to get over them.
What Is a Crypto Trading Plan?
Your crypto trading plan is an organized structure that guides your trading decisions in the crypto market. It is more like the rules you have chosen to trade by. Those rules guide your market decisions since they contain information on what to trade, when to trade it, why to trade it, and how to execute trades.
The main problem for many young traders begins when they start to ignore their working strategies for different reasons. We will consider some of these reasons in the following section.
Reasons Traders Find It Hard to Stick to Their Trading Plans
Now let’s start looking at why traders find it hard to follow their trading plans.
1. Overconfidence or Loss of Confidence
Overconfidence can cause a trader to believe he is already good and knows his way around the market. For that reason, he stops following his trading plan. Many inexperienced traders can become overconfident when they have a series of winning trades. This could lead them to forget their risk management plans and take higher risks than they initially planned.
On the other hand, having a series of losing trades or remaining in losses for a long time can make young traders lose confidence in their trading strategies. The trader may start to think that their strategies are not good enough and that they need to tweak them. Some even abandon the strategy in search of the ‘perfect’ strategy. Trying to do that leads them to more losses.
2. Being Distracted by What Others Are Doing
Beginner traders can easily get distracted by what other traders are doing. Such traders can start to follow the thoughts and trading ideas of other crypto traders in different forums, using them to make decisions without any major conviction.
Before trading, you need to carry out different types of analysis and follow the results. Trading based on what other people say will only lead to more losses since you may not know the idea behind the strategy or how best to manage the trades.
3. Lack of Compatibility With Your Plan
Different types of trading styles fit different personalities and schedules better. If your trading plan and strategy do not fit your personality, you will find it hard to follow your plan. Some traders cannot handle the thought that they have running trades or long-term investments but want to see the result immediately; such traders may do better with short-term strategies. Long-term strategies may be the best fit for you if you have a busy work schedule.
A trader who does not like to take risks may not want to trade derivatives or other leveraged trading but may prefer options such as spot trading, P2P trading, or other non-leveraged trading.
4. Not Having a Clearly Defined Plan
You will find it hard to have a structured way of trading if you do not have a clearly defined plan. Not having a plan only makes you jump into trading at every opportunity you see. Traders who do this don’t have consistent results.
5. The Market Is Always Open
The market is open 24 hours a day, every day of the week. However, trying to catch every move can become tiring. There are times in the market when there is little or no trading activity. It could also be that the trader has sat before the chart all day and could not find his setup. Such a trader can be moved to start forcing trades and deviating from his plan. They start to take trades that they normally would not take. Such impatience causes them to make impulsive decisions.
You can easily lose concentration when you are exhausted and fatigued, reducing your general efficiency. Not getting the needed rest can cause you to deviate from your trading plan. It is always better to stay away and not execute any trades when nothing is going on than to execute trades and make mistakes.
6. Emotional Trading
This is the worst that can happen to anyone trading cryptocurrencies. Trading out of emotion means you only trade on impulse without any clear trigger.
These sets of traders are affected by various trading psychologies. They are afraid to miss out on trading opportunities, so they jump into trades too early or when they have not seen their setups yet. Sometimes they have doubts, and even with a clear setup, they find it hard to enter out of fear of losses.
Emotional trading also makes you get out of winning trades too early to secure profit and stay too long in losing trades, hoping the trade will reverse. All the actions described above have resulted in significant losses for many people.
How to Stick to Your Trading Plan
The following practices can help you stick to your crypto trading plan.
1. Thoroughly Backtest Your Strategy and Stick to It
There is no way to know if your strategy works or not if you have not thoroughly tested it. Backtesting is very important for developing an effective trading system.
When backtesting, you test your strategy through historical data to see how it works. The idea behind backtesting is that any system that worked well in the past is likely to work well in the future. On the other hand, any system that does not work well when tested on past data is not likely to do well in the future. When you put your strategy through a thorough backtesting process and the result is positive, your confidence in such a strategy increases.
2. Have a Clearly Defined Trading Plan
Your trading plan should be set around your strategy. It will help you approach the market in a more structured and systematic way.
Your trading strategy should include whether you will trade long-term or short-term, what will prompt you to execute and exit trades, your potential risk-to-reward ratio, your money management and trading rules, and the best time(s) to trade (in the case of short-term trades). Because the market is open for 24 hours does not mean you should trade for that long.
3. Stop Following the Herd
There is a tendency to follow what everyone else is saying or doing when trading cryptocurrency. It becomes worse for beginners when they belong to a forum where people share their thoughts about a crypto asset.
It is not wrong to have someone you follow, but trying to get everyone’s thoughts to know where to enter a position and where to exit it and making trading decisions around such thoughts is always wrong.
4. Stay Disciplined
You will always have times when you want to trade outside of your plan. You wish to take bigger positions or have so much confidence in a position that you just want to double your account with such a move. Such a period may be a good time to stay away from trading and trading-related activities.
Every trader needs discipline, and unfortunately, it is one of the hardest things to maintain while trading. Only a disciplined trader won’t go by what everyone is saying, except if it also matches his trading plan and strategy. It also takes a disciplined trader to have a clearly defined trading plan and stick to it.
A Good Strategy Has Ups and Downs
You are only setting yourself up for losses when you don’t stick to your trading plan. A good strategy has its ups and downs; there are times when it is working well and seems like the best thing in the world and other times when it could even look like the worst strategy ever. An average trader goes in to tweak the strategy anytime he has a series of losses, leading to more inconsistent results.
Make sure you thoroughly backtest your strategy to be sure it works, draw a trading plan based on the backtesting result, and stick to it all the way through. The strategy will have winning streaks and losing streaks, but with a good risk-to-reward ratio, you will still be good.
Reference: https://www.makeuseof.com/crypto-trading-plan-challenges-and-how-to-overcome-them/
Ref: makeuseof
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