Method and risk · Practical guide
Before trading or investing, always have a Plan A and a Plan B.
A useful plan answers two questions: what do I expect to happen, and what will I do if the opposite happens? Prepare your answer before investing or trading, while you can still decide calmly.
Plan A: what you seek and when to enter
Define the objective, entry conditions, capital exposure, and how you will exit if the scenario plays out. “I think it will go up” is not yet a rule you can follow.
Plan B: what you will do in the worst-case scenario
Ask yourself what the worst outcome could be and decide your response before starting. Consider that price may keep falling, take years to recover, or you may lose the exposed capital. Define what you will do, how much you are willing to lose, and which limit you will not move.
Plan B may mean holding an asset, reducing exposure, closing, or using a planned reserve. It must include a response if that second plan also fails. Adding money out of anxiety to recover losses does not replace a plan.
These examples explain how I organize my trading; they are not financial advice or an instruction to replicate it.
Example 1: a Spot Grid Trading Bot with BTC/USD
My Plan A: open a bot to take advantage of fluctuations within a range and earn USD, with a favorable outlook for BTC.
My Plan B: if BTC falls below the range, I have already decided whether I want to hold it long term. During the decline, the bot has been using USD to buy BTC at lower prices. Outside the range, it may stop trading while holding that BTC.
In that scenario, I can manually close the bot and choose to keep the BTC instead of selling it for USD. I check the closing screen first: depending on the available options, I can receive BTC and remaining USD separately. An automatic stop-loss closure may work differently and sell the coins.
This way, I may end up with more BTC than the BTC equivalent of my initial capital, even though its USD value is lower at that moment. Holding it retains the possibility of participating in a recovery: it does not eliminate the unrealized loss or ensure the price will recover.
I start with 1,000 USD when BTC is worth 100,000 USD: equivalent to 0.01 BTC. To simplify, imagine two purchases:
- 500 USD at 100,000: I buy 0.005 BTC.
- 500 USD at 80,000: I buy 0.00625 BTC.
I accumulate 0.01125 BTC. At 70,000, it is worth 787.50 USD: I still have a loss in value. If BTC returns to 100,000, that BTC would be worth 1,125 USD.
Illustrative example without fees. A real grid makes more trades and may produce a different result; accumulating more BTC or profiting when the initial price recovers is not guaranteed.
If that recovery happens, I can consider opening another bot or continuing to hold. My Plan B only makes sense if I accept ongoing BTC exposure, can do without that money, and have defined what I will do if my thesis becomes invalid.
Example 2: reserving capital for Perpetual Futures
I do not commit all my capital when opening the position. I divide it into portions and keep a planned reserve to respond to a decline. I distinguish two actions:
- Adding margin: increase the capital backing the position to move liquidation further away. By itself, this does not change the average entry price or position size.
- Increasing the position at lower prices: in a long trade, this may lower the average purchase price of the contracts. It also increases exposure and potential losses if price keeps falling.
That is why the plan must set the maximum total commitment and when to stop adding capital in advance. Having reserves does not make liquidation impossible.
When I consider going long on BTC
My approach to BTC starts from a long-term bullish thesis. I do not open LONG Futures positions at just any time: I look for a context where I believe the hardest phase of the bear cycle may have passed. For example, I wait for a combination of:
- A prior decline of more than 50% from its all-time high.
- More than 300 days in a bear market.
- Some bullish signal supporting my recovery scenario.
These are personal filters for considering an entry, not proof that the bottom has been reached. If I do not find that context, I prefer not to trade BTC Futures. Even when those conditions are met, price may keep falling and a leveraged position may be liquidated before an eventual recovery if not properly managed. Good management reduces that risk but does not eliminate it.
Understand liquidation and how it can change →
Three signs you are improvising
- You move your limit every time price approaches it.
- You impulsively increase the position to recover losses quickly.
- You only review the strategy when it shows profits.
Also assess how you made the decision. A good decision can end in a loss, and an improvised decision can work out by chance. Check whether you acted according to the scenario you had planned.
A plan does not eliminate losses. It helps you decide before fear or euphoria decides for you.
To go deeper, discover how trading bots work and how margin and Futures work.
Notes on how bots work
Options depend on the product and configuration. Keep learning in our trading bots guide and in the explanation of liquidation, margin, and exposure.