Before we get into the rules, I’d like to mention that there is an excellent online course you can take to become a better trader, it’s called 15 Minutes to Financial Freedom by The Better Traders. If you have never traded Cryptocurrency before and want a place to start, then this is the course for you!
But let’s talk about the five rules that I use for trading, so I’m sharing with you some of the insights that I’ve gathered from the books that I’ve read and also my personal experiences in trading cryptocurrency. Want to become a better trader? Then let’s dive right in!
1. Let the market tell you what’s going to happen
Rule number one to become a better trader is to let the market tell you what’s going to happen, not stocktwits, not Twitter, not Reddit or Discord or Yahoo or whatever. This sounds a little bit weird, but it’s simpler than you think. You have a chart, the chart is going up and down, it makes a peak and it goes down or it’s on a steady incline. It’s trending up or it’s trending down. Let the market tell you what’s gonna happen next.
You’re looking at what’s happened previously in the chart and judging off of that you’re gonna make your decision on what to do next. Where to buy, where sell, where to set a stop loss. Don’t rely on people’s advice on Reddit or stocktwits or Yahoo or whatever site to become a better trader.
2. Make a plan and stick to it
This one sounds so easy and so stupid at the same time. You really do need to have a plan whenever you place a trade to become a better trader. Part of having an excellent plan in place means that you need to know where you want to buy or you want to sell and where you want to get out in case the trade goes south. Most trading platforms don’t allow you to have this three-point planning, but 3Commas does and that’s why I love to use it. This is great because if you’re used to trading on traditional platforms, you’re used to seeing one option “buy at this price”, and that’s all you get. You could buy this price and then you wait and if it gets filled then you have to make another decision.
Now let’s take a scenario you go in with a plan: you want to buy at 5 and you want to sell at 7. What if you buy at 5 and it goes to 7, then it goes to 8 and 9 and you start getting giddy. You start getting excited and emotional thinking it’s gonna go up forever and you don’t set a limit sell, you don’t get out of it and you don’t set a stop loss to protect yourself. And then it goes down to 3, yes it’s a wild ride. Those are some huge percentages but the point is that you want to have the plan going in and you want to stick to the plan. That’s why 3Commas is really powerful for cryptocurrency automated trading.
Trailing take profit
Another awesome part about 3Commas is the trailing take profit feature. In the same scenario I gave you before where we’re buying at 5 and now we’re gonna sell at 7. Let’s say that we have it set to sell at 7 but we have trailing take profit enabled and we’re gonna trail at 5%. So it goes up to 7 and then it goes up a bit more and it goes up to 8. What it’s doing is as this price goes up, the trailing take profit is right there under it so that way when it finally goes down you actually maximize your profit you’re actually gonna instead of closing it at 7 you’re gonna get maybe selling at 8 or 9 which would be amazing if you’re buying at 5.
3. Be satisfied with your gains
Exiting a trade in the green with gains should be job number 2 to become a better trader. Yes, I do mean job number 2! It’s not the most important thing to do to get gains, gains, gains all the time if you can’t keep your gains. If you can’t protect what you’ve gained, your account is just going to crumble and collapse. It’s not gonna be worth it, you’re going to go to nothing and it’s not gonna be fun. No fun.
So a way that you can start to be satisfied is to forget the whole shoulda woulda coulda mindset when you’ve exited a trade. Have we all had those trades where “Oh if I only put my Sell order just a little bit higher, I actually would have sold” or “I would have got 30% instead of 25” or “I would have got 50% instead of 20 or 10”. Don’t do it. Don’t commiserate over what could have happened. You made the best plan possible with the information that you had. You made a plan, you stuck to it and you exited in the green! That is fantastic! That should happen every time. Does it? I want to say yes, but no it doesn’t. But that should be the goal, right? Part of becoming a better trader.
4. Minimize your losses
Securing your gains and your account value is job number 1 to become a better trader. Yes, you need to protect what you’ve earned, you need to protect what you’ve invested in. How do you do this?
The first way that you can do this is not usually considered the most friendly or confident way to protect your gains in your account, but it’s really the best one, and that’s to set a stop loss. Stop losses can be dirty words sometimes when it comes to trading. Maybe it might feel like a failure to you or you’ve got out of a trade with a stop and then all of a sudden your coin shoots up. They’re just waiting for you to sell or whatnot. Yes, of course, that could happen, but it can also go even worse and even further down. You really do want to use a stop loss. Well, there are two reasons why you can always get it. You can usually get back into a trade at a lower price, not always but usually.
How much should you set your stop-loss to? Don’t ask me that! I don’t know what chart you’re looking at! I don’t know what you’re doing, man. Be responsible! Plan your trade, trade your plan. I don’t have a specific number. Well I do. A guy by the name of Dr. Alexander Elder wrote a book called “Trading For a Living” and he suggests protecting it with something crazy like 2% 🙂 . In cryptocurrency land, things are very volatile. There’s Fat Fingers all over the place, sometimes the charts are going up and down 10% in an hour. It’s really up to you to make that decision. I try to stick somewhere between 6 and 10 percent.
Diversify your trades
Another way that you can secure your gains and maintain your account value is by diversifying your trades. Don’t put everything you have into a coin even, if it’s rallying, even if you feel like it’s going to go well or it’s like a tip-off from XYZ group or you know it’s gonna blah blah blah. Please don’t do it! It’s dumb. It’s just foolish and reckless. You don’t know what the market is going to do you. Always react to what the market is showing you and then you make your decisions but don’t put everything into one trade.
What if you have a low account balance and you’re only trading with a hundred bucks? Yeah, that’s not very much, I know, but you could still do well. You want to not think about dollar amounts as you want to think of percentage gains. That’s really going to add up, and that’s what you want to focus on to become a better trader.
For instance, if I had $100 I was trading with and I diversified my trades and I wanted to do 10% of my account and I had 5 trades going and 4 of those 5 trades went up 5%. So then I have 20% total and then one trade went down 6%, so then I would have 14% so overall my account grew $14. Yay! You can go to the movies! Now let’s add another zero to that. What if I had $1,000 and now I wanted to split my account up and diversified 10%. We did the same thing 100 dollars, 100 dollars and I made 10% on 4 of those trades and I lost 6% on one. It’s the same percentage, but now instead of a $14 I’ve earned $140 over those 5 trades. Now add another zero and another zero.
Dr. Alexander Elder is working with huge accounts and people with really big accounts. Floor traders, that kind of thing. So the percentages are really smart on his side, but for you, with a small account, you might not feel like it applies to you. Don’t believe the lie. Think in percentages, work for those gains that are consistent and steady and that grow your account over time. It might not be everything all on black and then boom like crazy, but that’s okay. You don’t want it to be crazy, you don’t want to have a high risk like that.
5. Don’t get emotional, secure your profits
Yes, this is pretty much the same as rule number three. The idea behind this rule is that when you have a coin or stock that all of a sudden out of nowhere just starts to rock it up, and it’s rallying and it’s going up or it’s being pumped or whatever and you bought it at a low price and you see it going up, the emotional part I’m talking about is getting carried away. Getting into that euphoria feeling of oh man this is gonna go up forever, it’s gonna go up 50, 100, 200, 300 percent of this one rally. While it could happen, it’s really dangerous to get sucked into this emotion. And that’s when you start not thinking. That’s when you start just going oh man this is great, what are you gonna do with the money… It’s like counting your eggs before they’re hatched.
So what am I suggesting to do? I’m suggesting to do something called a preservation stop or a preservation stop-loss. Again I’m using that word stop-loss but really you want to think of it as a stop. So I have that coin that’s rallying up and then I bought it at a low price, and it’s going way up. Let’s say that I’ve passed the 10% mark. I should automatically bring up my stop limit to 10% and just leave it there. And if it goes up another 10, move it up. And if it goes up another 10 again, move it up. You can change the increment, it doesn’t have to be 10%. I’m just throwing on an arbitrary number, but you get the idea. This is really important and that’s why it’s called a preservation stop. You’re preserving your gains because you don’t know what’s gonna happen.
Or let’s be honest: we all know what’s gonna happen. What comes up must come down. You don’t want to miss out on the gains. So use that preservation stop to secure your gains when that crazy skyrocket happens, and when it runs out of gas and it starts to go down again. That you exit the trade with positive percentage gains.
This is something else that 3Commas does really well. The trailing stop loss is part of the plan that you make at the beginning. So when you set your stop-loss, you can click the little button below. The percentage that you’ve set for your stop-loss, be it 6%, 10%, 12% or whatever, as it goes up it’s going to automatically do that preservation stop-loss. I don’t have to touch anything. It’s kind of cool because you see the little bar going. And then you see this little red thing come up behind it and it’s that stop-loss. I’ve seen it before where it goes up and then it goes down. Then it gets cut off and I exited with more gains than I had initially planned.
So now you have these five fantastic trading rules to become a better trader. What do you do with them? Please don’t just read this and forget them. If you really want to incorporate these trading rules, you need to develop a system where you’re reviewing them on a daily basis. What I do, is I use a program called Todoist and I have this set up as a recurring daily event.
I have these 5 rules, and basically, I look at them every day, and I tap it after I read it, and I click done. So that way at least I’m seeing it on a daily basis and I kind of have it soaked into my brain. Yes, even I sometimes mess up and I don’t follow my own rules! Even though I’m reviewing them on a daily basis, which drives me crazy. So you have to have a little bit of grace for yourself in order to become a better trader.
The rules are there to help you protect your gains in your account and to be a better and more effective in the green trader. But is it always possible to be perfect? No, but this is a good start and again I really recommend you take the Better Traders course called 15 Minutes to Financial Freedom.
These five trading rules aren’t the end-all be-all of trading rules. Please take them, modify them, think about them and how they might apply to the way that you trade. Maybe you already do some of these things, and maybe you do some of them better. But I would love to hear your comments and your thoughts on how you trade, and trading rules that you observe and reasons why you do X Y & Z.