3-8 Scalp Trade

How to Develop a Trading Strategy. | Part 1

So you want to develop your own trading strategy, your own winning trading system that you can use to pull money out of the market whenever you want. Well, let me tell you that it takes much more than just a strategy to have a winning system. In fact, a strategy is only a tiny part of it.

Apart from the strategy, you will need to develop a good Trading Plan. You must then implement your trading plan with the correct Trading Psychology. Risk Management will also play a critical part in your success as a trader. If any one of these is not implemented or executed correctly, you are guaranteed to fail.

This post aims to show you how you can develop your own trading system. Yes, it will require some work, but it does not have to be complicated. Let’s explore some of these ideas, and I will show you How to Develop a Trading Strategy and put it together in a Trading Plan and see if we can come up with a winning strategy.

Some Background First.

I have been trading for around 20 years. I have traded Stocks, Derivatives, Futures, FX and crypto. I have spent thousands over the years on various trading strategies and systems. Some have been successful, and some have not or what I really mean is I have had success with some and not with others. It was my fault when I failed, not the strategy.

This is a hard pill to swallow at first, but it is the truth, and you must realise this if you want to be successful at trading. My goal with this series of posts is to show you how to develop a simple, successful trading strategy and explore its potential so we can maximize profits. We will test and review and write a trading plan around the strategy once we have refined it.

My goal is to create a simple yet successful Cryptocurrency Day Trading System. Now I honestly do not know where we will end up or if we will be successful, but hopefully, we can learn something along the way and develop a winning Crypto Day Trading System.

Why Not Buy a Strategy?

I will be frank with you here, the fastest way to succeed as a trader is to find a good mentor and copy them, buy their strategy or course. It takes time and a lot of trial and error to develop your own winning strategy and to write a solid trading plan. If you buy a trading course, you can fast track your trading journey and avoid costly mistakes.

If you are new to trading, I would certainly recommend you start this way. My number 1 recommendation for learning to trade crypto is the course by Trader Cobb. You can read about it here ===> Trader Cobb Review – Is it worth your coin?

 

The three strategies that I personally use are the Trader Cobb strategies. Craig sells a complete package and is a full-time professional crypto trader. His 3 strategies work on all time frames and markets; however, they do not cover scalping. That is what this post will be about.

Why Develop a Scalping System

When you have been trading for a while, you will realise what sort of a trader you are. You will work out how you handle risk and whether you like shorter or long-term trades. I personally like the thrill of the market, and the shorter-term trades, so I have decided to try and develop my own scalping strategy that I can trade with a trading bot.

I have not looked to see what is already out there and thought I would use this series of posts as an educational tool for both you and me to see what we can learn and hopefully come up with a sound trading system end of it.

I have not tried or tested any of the methods I will be using, so it will be all live trial and error with real results. I aim to start with a few basic indicators, develop a trading system around a basic strategy, and make it profitable. I have not had a lot of experience with trading bots, but ideally, I would like to automate this trading system to be traded successfully on a trading bot.

What’s in a Strategy?

A lot of people are constantly chasing that “Holy Grail” strategy. They believe that if they can find that perfect strategy, they will Get-Rich-Quick. When one strategy doesn’t work for them, they try another one and then another until they eventually give up and blame the strategy when in fact, the strategy was good.

Believe me when I say that a strategy is only a tiny part of your success. There are literally thousands of winning strategies out there. You need one that will give you a slight edge. Once you have found this edge in the market, you need to explore it, tune it & tweak it to find what works best.

Money management will play one of the biggest roles in your success. You need to write a solid Trading Plan around your strategy that includes managing your risk and exactly how you enter and exit trades. If you follow my posts, you will see that the strategy forms only a small part of the big picture.

The Scalping Strategy Rules

Here we are going to start laying down some rules and structure. You need to remember that I will be developing this as we go, so if you want to join me on this journey, feel free. Any feedback is welcome and will be considered in developing this system. I will lay down some basic rules and then do some backtesting and see what results we get.

Once I have found an edge, we will test some variations and compare some results and see if we can optimise the system. Once we have a winning system on paper, I will put some money in a real trading account and test the system live and publish the results.

I have decided to start with some exponential moving averages for this strategy and add some more rules and indicators as we do some testing. For now, though, we want a basic 5-minute candlestick chart, and we will add 2 exponential moving averages—a 3 & 8 EMA.

We will look for the crossover of the 3-period EMA through the 8. This shows us a change in direction or trend of price and we can go long or short. The crossover will be the main entry trigger but we will need to add some more filters later.

Basic Rules

  • 5 min charts – this could change later, but we will start with only 5-minute charts as this is a scalping strategy.
  • I will trade Perpetual Futures contracts on FTX – FTX is a good reputable exchange with good liquidity, and I can go long or short with margin.
  • ALWAYS use a Stop/Loss – A stop-loss MUST always be used
  • 1:1.25 Risk to Reward – As a starting point. this may change depending on the results
  • 2% Risk on any one trade – A maximum of 2% of the trading bank will be as risk on any one trade.
  • Top Market Cap Coins only – We will start on BTC and the top 10 Market Cap.

Conclusion

I am not sure if this strategy will even be profitable, but we will soon find out, and if it does not give us an edge we will try something else. In the meantime, I will set my charts up and do a little backtesting to see if this has any potential. I am not sure how many posts it will take to complete, but we have some good basic starting points.

I will start doing some testing, and in the next post, we will cover setting up the charts and have a look at taking some trades and establishing some trading rules. This scalping system will evolve as we test different parameters and as I said, feel free to join me and share your results.

Alright, I am going to start testing. If you have any questions or suggestions, please shoot me an email. Hopefully, the result will be a profitable scalping system that is easy to use and can be automated. Imagine how cool it would be to set up a profitable trading bot that you can turn on whenever you want to generate some cash. Hmm, something to think about?

DeFi Dave


! DISCLAIMER: I am not a financial advisor. This is not financial advice. The content and material I provide on 2dsirecrypto.com is my opinion only and general in nature. Always do your own research before investing any money. You should always understand the risks involved in trading and investing and seek advice from licensed professionals before undertaking any investments of your own.

4 thoughts on “How to Develop a Trading Strategy. | Part 1”

  1. Hi Dave, this is a great idea and sounds like it could be a lot of fun. I do have a couple of suggestions. Firstly, an administrative suggestion – maybe you could start a subscription just for this series. e.g. I would sign up for that. As regards the system, I have played a bit with moving averages and I don’t think it gives you quite enough to reliably trigger trades from. I would suggest including trading volume on the basis that volume equals validity. To see that a trend is really developing you want to see that volume is either increasing or at least above average to support the price trend. I look forward to your next post on this. Good Luck!! and best regards, Andy 

    1. Hi Andy

      A lot of fun, yes and also a lot of work but hopefully rewarding in the end. I have been thinking about a subscription service, might look into it further.

      The moving averages are just one part of the strategy so far. I have been looking to add another indicator. I am playing with a 55 MA at this stage, but will I update you in my next post. The 3-8 MA have some potential, I think but definitely need something else. I will have a look at the volume.

      Thanks for your input, Andy.

      DeFi Dave 

  2. Very interesting. So far, I own a bit of crypto, but I am no where near as knowledgeable as I would need to be to make trades with any of it.  However, I am very interested in learning more.  What would you suggest as a beginners course to making money for crypto through trading? I see the course you recommended above, but am nervous that that is a bit advanced for my skill set.  Could you recommend any YouTube channels or books to help me get started? Thanks for the help! 

    1. Hi Ashley, great question.

      I can honestly say that the free course from Trader Cobb is one of the best around, even for a complete beginer.

      It starts with the very basics and builds on that. If you want to get more advanced their is paid for courser and subscriptions but I would suggest to start with the Free Course.

      DeFi Dave

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