How to Write a Trading Strategy

Creating a structured and well-defined trading strategy is essential for consistent performance and minimizing emotional decision-making.

1. Selection of Coins

Define clear criteria for selecting assets to trade. Examples:

• Active coins: Focus on coins with increasing trading volumes (e.g., a coin’s volume increases from $100M to $500M).

• Divergence from Bitcoin: Look for coins with charts significantly different from Bitcoin’s movements, indicating a negative correlation.

• Top performers: Trade only the top 5 gainers or losers by percentage change over a specified period.

• Volatility and liquidity: Target coins with a specified number of trades or a defined volatility range.

• Volume threshold: Only trade coins with a minimum daily volume (e.g., $200M or higher).

Ensure your criteria are specific and measurable, leaving no room for ambiguity. This will help you consistently identify the right coins to trade based on your strategy.

2. Chart Patterns

Identify and document the graphical formations you plan to trade. Examples:

• Double tops/bottoms

• Breakouts above resistance levels

• Bullish or bearish flags

Each pattern should include clear definitions, entry rules, and confirmation signals to ensure consistency.

3. Entry Point

Define your entry conditions. Examples:

• Enter at a breakout level with confirmation (e.g., a candle closing above resistance with increased volume).

• Use retracements to enter near support levels after a confirmed bounce.

4. Approach to Entry

Outline your approach to timing and method of entering trades:

• Scale into positions by dividing your order into smaller parts.

• Use limit or market orders based on specific conditions (e.g., high volatility might require market orders).

5. Stop-Loss Placement

Determine stop-loss levels based on your strategy. Examples:

• Place stops just below recent support levels or a certain percentage away from your entry price.

Your stop-loss rules must be logical and directly tied to the trade setup, avoiding arbitrary placements.

6. Take-Profit Strategy

Define clear take-profit levels:

• Use a fixed risk-reward ratio (e.g., 1:3).

• Scale out of positions by taking partial profits at predefined milestones.

• Adjust take-profit levels dynamically using trailing stops or resistance zones.

Avoid setting profit targets without a rationale rooted in your strategy or market conditions.

7. Trade Management

Plan how to behave once the trade is active:

• Stick to your stop-loss and take-profit levels without making impulsive adjustments.

• Monitor price action and adjust stops if the trade moves significantly in your favor.

• Avoid over-managing by checking your position too frequently.

8. Risk Management

Incorporate risk management principles into your strategy:

• Daily drawdown limit: Set a maximum allowable loss for the day (e.g., 5–10% of your trading capital). Stop trading once this limit is hit to protect your account.

• Per-trade risk: Limit the risk for each trade as a percentage of your capital (e.g., 1–2% per trade).

• Number of attempts: Divide your daily drawdown limit by the number of trades allowed. For example:

• High-frequency trading: Divide by 10+ trades.

• Selective trading: Divide by 3–5 trades.

This structured approach ensures that no single trade or series of losses significantly impacts your overall capital.

Final Note

Document every step of your strategy thoroughly. Ensure each action is backed by logical reasoning and evidence rather than impulsive decisions. A well-defined strategy reduces errors and helps eliminate emotional influences during trading. Stick to the plan, adjust it based on results, and refine as needed.