Module 4: Technical Analysis for Crypto
From Analysis to a Trading Plan
Chapter 16 of 16 · about 7 minutes
16.1 Right about the chart, wrong about the trade
Mint had studied every chapter in this module. One day, Mint spotted a textbook setup: Bitcoin pulling back to support in a weekly uptrend, with a bullish engulfing candle and RSI cooling to 45. Mint bought, with a large position and no stop-loss.
Bitcoin dipped another 8% before eventually rising. Mint panicked near the bottom and sold at a big loss. A week later, the price was well above Mint's original entry.
"My analysis was right," said Mint. "So why did I lose so much?"
"Because analysis isn't a trading plan," said Hash. "You knew where to enter. You didn't decide how much to risk, where you'd be wrong, or what you'd do if it went against you. That's what this chapter is about."
16.2 The parts of a trading plan
Every trade needs answers to five questions before you enter.
| Question | What it defines |
|---|---|
| Why am I taking this trade? | The setup and the evidence for it |
| Where do I enter? | The entry price or trigger |
| Where am I wrong? | The stop-loss, where the trade idea is invalidated |
| Where do I take profit? | The target or exit plan |
| How much do I risk? | The position size |
Write these down before entering. Once money is at risk, emotions make clear thinking much harder.
16.3 Risk per trade
The most important number in trading isn't your entry. It's how much of your account you're willing to lose if the trade fails.
Many experienced traders risk only 1% to 2% of their account per trade. That might sound small, but it means a string of losses, which happens to every trader, won't destroy the account.
| Consecutive losses | Account left, risking 1% per trade | Account left, risking 10% per trade |
|---|---|---|
| 5 | ~95% | ~59% |
| 10 | ~90% | ~35% |
| 20 | ~82% | ~12% |
Remember from Module 1, Chapter 13: recovering from a 65% loss requires a gain of about 186%. Small risk per trade keeps you in the game.
16.4 Position sizing
Here's how to turn "risk 1%" into an actual position size. Mint has a $10,000 trading account.
| Step | Value |
|---|---|
| Account size | $10,000 |
| Risk per trade (1%) | $100 |
| Entry price | $100,000 |
| Stop-loss (below support, about 1.5 × ATR) | $97,000 |
| Risk per BTC (entry minus stop) | $3,000 |
| Position size ($100 ÷ $3,000) | ~0.0333 BTC |
| Position value | ~$3,333 |
If Bitcoin falls to $97,000 and the stop triggers, Mint loses about $100, which is 1% of the account, as planned (plus fees and any slippage).
Notice the logic. The stop is decided by the chart. The position size is decided by the stop. You never move the stop to fit a bigger position. If the stop needs to be far away, the position gets smaller.
Chapter 16 · Sizing Mint's trade
Five steps from left to right. Entry at $100,000. A stop-loss from the chart at $97,000, below support and about 1.5 times ATR. Risk per BTC of $100,000 minus $97,000, or $3,000. Account risk of 1% of $10,000, or $100. Position size of $100 divided by $3,000, about 0.0333 BTC, worth about $3,333. A note says a wider stop means a smaller position, and the stop is never moved to fit a bigger one.
This also handles volatility automatically. A more volatile asset needs a wider stop (Chapter 11), which means a smaller position for the same dollar risk.
16.5 Risk-reward ratio
The risk-reward ratio compares what you could gain with what you could lose.
In Mint's plan, the next major resistance is at $109,000.
| Value | |
|---|---|
| Entry | $100,000 |
| Stop | $97,000 (risk of $3,000 per BTC) |
| Target | $109,000 (reward of $9,000 per BTC) |
| Risk-reward | 1 : 3 |
Traders often describe outcomes in R, where 1R is the amount risked. This trade risks 1R ($100) to potentially make 3R ($300).
Risk-reward determines the win rate you need to break even:
| Risk-reward | Break-even win rate (before fees) |
|---|---|
| 1 : 1 | 50% |
| 1 : 2 | ~33% |
| 1 : 3 | 25% |
With a 1 : 3 ratio, Mint could be wrong on three out of four trades and still roughly break even.
16.6 Expectancy: why accuracy isn't everything
Chapter 1 said that a trader who's right 40% of the time can beat one who's right 60% of the time. Here's why.
Expectancy is the average result per trade:
Expectancy = (win rate × average win) − (loss rate × average loss)
| Trader A | Trader B | |
|---|---|---|
| Win rate | 40% | 60% |
| Average win | $250 (2.5R) | $100 |
| Average loss | $100 (1R) | $200 |
| Expectancy per trade | (0.4 × $250) − (0.6 × $100) = +$40 | (0.6 × $100) − (0.4 × $200) = −$20 |
| Result after 100 trades | +$4,000 | −$2,000 |
Trader B is right more often, but cuts winners short and lets losers run. Trader A is wrong more often, but keeps losses small and lets winners grow. Over time, Trader A wins.
"So the stop-loss isn't admitting failure," said Mint. "It's what makes the maths work."
"Exactly," said Hash.
16.7 Don't forget costs
Fees, spreads, slippage, and, for perps, funding all reduce your results (Module 1, Chapters 7 and 8, and the funding chapter of the Perpetual Futures module). Frequent trading on short timeframes multiplies these costs. A strategy that looks profitable before costs can easily lose money after them. Always include realistic costs when evaluating a plan.
16.8 A pre-trade checklist
Hash gave Mint a checklist to use before every trade:
- What's the higher timeframe trend and where are the major levels? (Chapters 5, 6, 14)
- What's my setup, and what evidence supports it? (Chapters 3 to 13)
- Is there confluence from at least two or three independent tools?
- What do funding, open interest, and broader market conditions suggest? (Chapter 15)
- Where's my entry, stop, and target?
- Is the risk-reward at least 1 : 2?
- What's my position size for 1% to 2% risk?
- Is there major news or an event coming that could override the chart?
- Am I trading because of the setup, or because of boredom, fear of missing out, or wanting to win back a loss?
If any answer is unclear, don't take the trade. There will always be another one.
16.9 Keep a journal
A trading journal records every trade so you can learn from it.
| Field | Example |
|---|---|
| Date and asset | BTC |
| Setup | Pullback to daily support in weekly uptrend |
| Entry, stop, target | $100,000 / $97,000 / $109,000 |
| Position size and risk | 0.0333 BTC, $100 (1R) |
| Result | +2.1R, exited early at $106,300 |
| Emotions | Nervous on the dip, tempted to move stop |
| Lesson | Followed the plan; exited early from fear, consider partial profits next time |
After 50 or 100 trades, the journal shows which setups work for you, which mistakes repeat, and whether your expectancy is positive. It turns trading from guessing into learning.
16.10 Practise first
Before risking real money, test your approach:
Backtesting means applying your rules to historical charts and recording what would have happened. Be honest: it's easy to unconsciously pick examples that worked.
Paper trading means following your plan in real time without real money, using a demo account or simply a written journal.
Start small. When you move to real money, use small positions until your journal shows consistent results.
16.11 Module 4 wrap-up
Mint, Node, and Hash met at the end of the module.
"I've learned charts, scales, candlesticks, patterns, support and resistance, trends, volume, moving averages, RSI, MACD, Bollinger Bands, ATR, Fibonacci levels, multi-timeframe analysis, and crypto-specific signals," said Mint. "But the most important chapter was the last one."
"Why?" asked Hash.
"Because analysis tells me where the odds might be on my side. The plan decides whether I survive when they're not."
Node, who had started the module calling technical analysis astrology, shrugged. "I'm still not convinced charts predict the future. But a written plan with a stop-loss and 1% risk? That I respect."
"That's a perfectly good place to land," said Hash. "Next, we look at the other side of the equation: what a token is actually worth."
16.12 Try it yourself
Write a complete trading plan for one hypothetical Bitcoin trade, using today's chart: setup, evidence, entry, stop, target, risk-reward, and position size for a $10,000 account at 1% risk. Don't place the trade. Record it in a journal, and check back in two weeks to see what happened and what you'd do differently.
Key takeaways from this chapter
- Analysis finds opportunities. A trading plan decides entry, stop, target, and size before you enter.
- Risking 1% to 2% per trade protects your account through inevitable losing streaks.
- The chart decides the stop; the stop decides the position size.
- Risk-reward sets the win rate needed to break even. At 1 : 3, you only need to be right 25% of the time.
- Expectancy, not accuracy, determines long-term results. Small losses and larger wins beat a high win rate with large losses.
- Include fees, spreads, slippage, and funding in your evaluation.
- Use a pre-trade checklist, keep a journal, and practise with backtesting and paper trading before risking real money.
Coming up in Module 5: Fundamental Analysis and Tokenomics. How to evaluate what a crypto project is worth: supply and emissions, unlock schedules, revenue and value accrual, treasuries, teams, competition, and reading a whitepaper critically.