For those brand new to trading, I’ll share a simple process for building a trading strategy that includes how to analyze the market, generate trade ideas, and make low-risk directional bets (” trades”) using the principles you just learned in the previous lesson.
This is NOT to be taken strictly as THE process to use, but more of as a template to design your own trading process.
This is not to say that other processes are bad, but they may not be ideal for beginners since many require additional skills (e.g., coding, statistical, math skills) and additional time to learn and become competent.
Other strategies can also work for newbies if they’ve already developed other skills such as on-chain analysis or programming quantitative trading systems.
But I think this specific process provides a solid foundation to learn certain skills needed as a trader.
Skills that, once you’ve become proficient, can be applied to other types of trading strategies if you find something else that works better for you.
What is this process?
The process I will be sharing can be described as a discretionary trading strategy focused on medium-term to longer-term timeframes.
Discretionary trading means using your judgment and intuition as part of the trading process.
The opposite of discretionary trading is “automated trading” or “mechanical trading”, where all trading rules are fully codified so the trading system does not require discretion because all trading decisions are predetermined by the rules of the system.
This princess can be broken down into four steps:
- Use fundamental analysis to help you find crypto assets that are potential trade ideas to “ go long” (buy) or “ go short” (sell).
- Once you’ve determined your directional bias (long vs. short), you will use technical analysis (TA) and price action (PA) to look for potential entry opportunities.
- Develop a risk and trade management plan which include at what prices you will enter and exit, position sizing, and how you will handle different market scenarios.
- Maintain your trading journal before, during, and after the trade. Review your notes and see if there are any lessons to be learned or adjustments to be made in your trading process going forward.
What should I try this process?
This discretionary strategy is a good starting point for most beginners because:
- It’s flexible in that it can be applied to any market, not just crypto, and adaptable to changing environments.
- This strategy looks for trends. Trends are how high return-to-risk trade setups are created and often take weeks or months to develop and play out.
- Trading on medium to longer-term timeframes means less time in front of the screen and minimizes transaction fees, which can eat into your profits or worsen your losses.
- It is great practice for learning to identify catalysts and drivers of the price action (micro, sector, and macro), which will help to develop your market anticipation skills.
The last point is important because anticipating market moves is one of the special skills of a trader.
You don’t have to always catch a move before it happens to be successful, but if you’re able to, you increase your odds of success since your trades will have more favorable reward-to-risk ratios.As you gain experience through daily practice using this trading process, you should be able to improve your ability to anticipate market moves over time.
Let’s now take a look at each of the four steps of the process individually.