Capital Management and Trading Plan - Crypto Academy / S4W8 - Homework post for @ lenonmc21
Hi, steemians trust our weekend is going well, I'm @olawole111 a student of the steemit crypto academy an so glad to partaker in the last week of the season lecture by @lenonmc21 on Capital Management and Trading Plan
INTRODUCTION
Trading plan is a very essential thing all crypto traders should know about and it does not stop on making a trading plans alone, as a trader we need to always follow our trading plans not just making a trading plan alone.
THEORETICAL QUESTIONS
Define and Explain in detail in your own words, what is a "Trading Plan"?
Explain in your own words why it is essential in this profession to have a "Trading Plan"?
Explain and define in detail each of the fundamental elements of a "Trading Plan"
Define and Explain in detail in your own words, what is a "Trading Plan"?
Trading plan can be defined as a organized structure of trading made in such a way to keep a crypto trader in profit with less loses, if followed by the trader.
Trading plan is a plan developed for executing trades and it entail risk management ,capital management,Trading Psychology all this essential trading element must be in a good trading plan.
CHARACTERISTICS OF GOOD TRADING PLAN
simplicity: A trading plan must be simple and precise it must contain the most important element of a trading plan, because if it not simple it might be too difficult to follow and making a trading plan is not the most paramount thing but following the trading plan and this is the mistake most traders make in trading which lead to frustration and lost of funds.
Daily targeted goals : A trading plan most have a daily targeted goal , what I mean about this is that having a daily target for trading which should not be exceeded because obedient is better that sacrifice.
Each day there should be an amount of orders we place at time greediness push us to over trade by exceeding our daily trading limit because we saw that the market is very volatile and we are in a very good trade.
plan is an organized approach to executing a trading system that you've developed based on your market analysis and outlook while factoring in risk management and personal psychology. No matter how good your trading plan is, it won't work if you don't follow it.visibility and Readability: what I mean by visibility is is that trading plan must be kept where we will be seeing it always, we can paste it on the wall of our room and as screen saver on our so as we see it on daily basis we will stick to the plans so as not to go beyond the written plans and it must also be readable easy to understand and very readable to the eyes so as not to take one word for another.
Must be balance : what I mean by balance is that it most entail all the important element of a trading plan so to make it very detailed.
Explain in your own words why it is essential in this profession to have a "Trading Plan"?
Trading is very important in trading at all levels whether beginner, intermediate and experts in fact a trader should not do without having trading plans in trading crypto. Is just like doing a business without business plan and any business without business plan will surely go down another senero not having trading plan is just like a car or vehicle with out full light in the front we all know that when night comes which is represented a crucial time in trading the person will surely fall into the dip.
There's a common adage that says anyone that does not plan is planning to fail this is also applicable to trading, most traders feel they know how to uses all the indicators and how to combine indicators with chart patterns to bring about very good technical analysis this are important but not the most important because when a trader don't follow the set down rule in the trading plan he or she is likely to loss his fund and get fruastrated.
The success of a trader can't be complete without having a good and balanced trading plan , A trading plan must eradicate all forms of greed in our trading because greediness can make us loss all our profit.
Trading plan helps in monitoring our trades , profit , loses and capitals so a not exceed the within trading limit, what I mean about loses on this statement is that it it help to manage our loses for example if have lost like two trades in a day I will will stop for that day and take a break then when am in the right state of mind I will continue trading.
Explain and define in detail each of the fundamental elements of a "Trading Plan"
I have been talking about fundamental element this element can't be avoided in making a proper and balanced trading plan That's why's its called fundamental element of making a good trading plan In which I will be explaining some of them.
MONEY/CAPITAL MANAGEMENT
capital management is a very paramount element in making a very good trading plan because capital management helps a trader to control his funds and to put too much risk and work load on his it her capital, the joy of every trader is to win trades and to stay long in trading but without proper capital management all the effort will be in vain.
capital management also go in line with risk management, proper risk management will make a trade preserve his or her capital for a very long time, a trading account should not be expose to too much risk that's why we have a term called risk reward ratio risk reward ratio allows a trader to know the amount of funds his risking in a single trade for example I have a trading account of $50 and am willing to risk 1% of the account on a trade which is $0.5 this is where risk reward ratio principle comes in if am using a risk reward ratio of 1:3 and my stop loss is at $0.5 which am willing to lose for that trade my take profit will be three times my stop loss which will be profit of $1.5 by doing this in have tried to secure my funds.
Greediness needs to be avoided so as to management capital well because greediness leads to over trading which trading without limit and in the space of no time an account can be blown if proper action is not taken towards greediness and over trading.
METHODOLOGY
This is where all the technical analysis trading pattern comes in, a trader must master one method of trading because switch from one method of trading to another will not be a advisable way of a trading, an adage even say that jack of all trades is master of none this is also applicable to trading as a trader we must stick to one trading method that works for us best, as we go day by day in mastering one pattern it helps is to give a trader edge over the market so in our trading plan it is advisable to stick to one or at most two two trading pattern for example I like coming moving averages with technical indicators to take my entry and exit point while another trader may wish to master the use of Fibonacci retracement for exit and entry of trade so every trader have the trading method that works best for him or her.
MINDSET
Trading mindset which is also called trading psychology is an important part to deal with why making a proper trading plan, since we are now trading with our real money as a normal human we won't want to lose our money because we have worked so hard to get the money. That's why its advisable not to borrow money ,try to double a particular fund for a purpose or using the money meant for another important purpose to fund our account because our emotions will rise and we will want to trade with the mind set of making profit at all cost , this why we have to use the money meant for trading to fund our account.
A trader must be in a good state of mind before taking any trade because our emotions affect our trades I.e we must not be depressed, must not be angry, most not be tired and we should always accept our losses because there's always another opportunity in trading any time we loss in any trade we need to take it like that because we can't revenge on the market , any attempt made to revenge on the market will make that person loss more and more so it's advisable to accept our losses because we can't win all trades.
Build a "Trading Plan" and cover all the basics discussed in class. For this, you should NOT take the examples that I put in my class (Including the example amounts), use your examples and your 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.
I made a 6 months trading plan report of a start up capital of $200 in which all the fundamental element of trading plans was observed using risk reward ratio of 1:3 and the goal was to make $3500 in six month though didn't meet the target due to some unforseen circumstances but I was very close to the targeted goal.
Some element that was considered was:
- Money management: I made sure I didn't exceed the risk reward ratio of 1:3 and I was ready to loss only 1% of my start up capital everyday for 20days in a month in which I made sure I didn't trade more that five days in a week , why I choose working days was because market is always volatile during working days and i was patient enough to wait for the perfect entry be for taking my trades , combining all this made my goal possible to achieve.
Risk management: I didn't exceed the laid down risk management which was not risking more than 1% of my capital and making 3% profit, though the market something might look so volatile and look tempting but I made sure I didn't break the rule of the trading plan and I sticked to trading for five days in a week without trading weekends.
Risk management really helped me to have edge and confidence over the market which boosted my profit.Trading psychology: I made sure I was in was In a good state of mind before taking trade.
Here Are my trading psychologies
I made sure the money I used as capital was originally for me and not for any other important purpose.
I made sure I did not place any trade when when am angry
Each time I record any loss I always close my trading application to have break from trading so to be in a right state of mind before placing another trade another day.
I didn't go beyond the laid down reward risk ratio to avoid fear of retracement.
planing and control
column one ; column one is where the months were recorded from one to six.
column two: This column is entails my start up capital for the six month.
column three: Here all the percentage losses of all the six month was recorded.
column four: Here all the profit percentage of all the six month was recorded.
column five: Here all the profit for all the six months was recorded.
column six : Here is the addition of all the six month profit With all the six month start up capital.
CONCLUSION
The most important thing is to obey the trading plan so we can stay long in trading and not loss all our funds, trading plan entails some element which are very important which are capital risk , risk management, Trading psychology and lots more .
Finally, all traders at all the trading levels most have a trading plan and follow them.
Thanks professor @lenonmc21 for your the very interesting lecture see you next seasons sir.