There are many pitfalls that can easily be caught when starting out in crypto.
While some mistakes will cost you a lot, it is easy to avoid most common mistakes.
Today, we’re going to look at the cryptocurrency trading errors that the four percent of successful traders tend to avoid, helping you avoid newbie errors that could otherwise leave you holding the bags and significant trading losses.
Don’t Try to Catch a Knife That Drops
The phrase “catch a falling knife” describes a trader’s attempt to buy a dropping asset at or near its low point of a major move.
This often happens when someone tries to compensate for a loss caused by a big move in an attempt to average down at the lowest point and ride back up the asset.
During price action, though, with a falling knife, there are many different points of gain.
If timed perfectly, as the price recovers, a trader who buys at the bottom of a downtrend can make a substantial profit.
Similarly, it can be beneficial to pile up in a short position as the price falls and get out before a recovery.
That said, there is a very real risk of the timing being off and significant losses could occur before any gains.
The adage is still being paid lip service by so many traders. Instead of trying to “catch the falling knife,” traders should use other technical indicators and chart patterns to search for confirmation of a trend reversal.
Trading on FOMO and FUD
Fear of Missing Out and Fear Uncertainty Doubt.
This appears in circumstances such as the early selling of an asset due to fear of losing profits, buying as much as possible because of the feeling that something important is missing, or the fear of missing a lucrative ICO, which is why you are investing in risky ventures.
It is the fear of the most common loss of profit which contributes to the loss of profit.
It’s hard to get rid of FOMO, but you can fight it.
To do this, create a set of rules for stock exchange trading or plan choice, as well as restrictions on future permissible losses and profits.
Enter a Position You Are Unable to Exit (No Stop Loss)
New traders tend to trade psychologically, dismissing losses quickly.
A trader’s most important skill is the ability to accept a loss and move on to the next deal.
Failure to do this is the main reason for losing money to traders.
Place a stop loss and don’t change it when the trade goes against you, as this action will likely blow up your account.
A stop loss is a tool that allows you to purchase or sell a market at a particular price to keep trading losses within your risk profile.
Not Using Proper Strategies For Leverage Trading
The most important and most often neglected aspect of day trading is potentially risk management when Leverage Trading.
Leverage Trading allows you to use more capital than you actually have but this comes at a cost.
New traders can often get liquidated as there capital get used up due to sudden price action going in the opposite direction of the trade.
Beginners tend to think that having more winning trades than losing ones is the only way to profit in trading.
However, more often than you win, it’s quite possible to lose and still come out with a profit.
Tip: Make sure to calculate risk reward before each trade to see if the trade is worth entering.
If you don’t know how to calculate your risk value or use multiple exchanges to hedge your business, you’re at risk.
Trading Money/Crypto Which You Can’t Afford to Lose
Not one individual is insured against failures and errors; even professional crypto traders often bear substantial financial losses.
Newcomer stories that failed to make any of the typical errors at the start of their trading journey can be called anomalous, or at least unlikely, with independent trading from scratch.
Adding To a Trade Loss
It’s different to invest and trade!
Investors average down positions with a long-term horizon in fundamentally sound assets.
Traders identified levels of risk per trade.
The trade was invalidated when their stop loss reaches, and they should move on to another trade.
We all have cryptocurrencies or digital assets we believe in, irrespective of how they suffered on the bear market in 2018.
Belief, however, should always be based on evidence instead of intuition.
Don’t let your judgment cloud your personal biases, especially when the stakes are high.
Following The Herd
Another common mistake made by new traders is that they blindly follow the herd; as such, they may either end up trading too much or FOMOing into a hot coin which everyone is talking about on twitter.
Experienced traders are accustomed to exiting trades when they get too crowded.
However, new traders may remain in a business long after the smart money has moved out of it.
Buying Cheap Coins
It’s obvious how the currency will grow even before investing funds.
If this is not a risky investment, then the value of the investment must be determined.
A coin may rise, but it may be a fraud.
You can’t invest fiat money just because the crypto is cheap.
Many inexperienced crypto investors think that most of the low-priced altcoins are just undervalued.
Trading Too Often
You can often prevent significant loss of streaks by avoiding over-trading that could otherwise seriously damage your portfolio.
After all, almost all of the coins tend to go down with it when the market is down.
Never set yourself an objective for a fixed number of trades per day, as this can lead to decisions that are less than optimal and force you to take unnecessary risks.
Trading Against the Trend
While more experienced traders can often benefit while not pursuing an asset’s general trend, beginners often have a hard time doing the same thing.
It tends to make lucrative trading opportunities scarce if nearly the entire market is in a downward trend.
Avoid Pump and Dump Groups
Often after you’ve made your first crypto trading moves, you’re likely to hear about pump (and dump) classes.
These are groups that claim to act in coordination to manipulate a digital asset’s price by massively increasing the purchase volume before dumping the coin on unsuspecting traders and bots seeking to get into the action.
However, the reality is not as rosy as it seems.
The truth is that it is almost impossible to take advantage of pump groups.
Typically, the group’s administrators buy up large amounts of the asset before they reveal it to the group.
They will then set their selling orders at a price somewhere substantially higher than their entry point, but low enough to be caught by the pump group members in the initial buy wave, making a huge profit.
Trying to Make Crazy Profits
It’s unrealistic to expect your portfolio to double within a month.
While theoretically possible, it would require extraordinary dedication and more than a little luck to achieve it consistently.
Try to set realistic benchmarks on how much money you invest as such.
Think about percentage improvement, not huge gains.
It is very important to be clear when we think about cryptocurrency trading.
Because digital currency trading can sometimes be highly unpredictable, you are more likely to lose than to win if you do not trade carefully.
As an investor, before attempting to make huge investments, it should be your priority to do proper market research and analysis.
Traders are more likely to make mistakes that can make a difference
Besides tips like keeping your emotions under control, diversifying your portfolio and taking care of security, don’t forget less obvious but important lessons.
Study cryptocurrencies technical analysis, know everything about trading indicators and be patient when waiting for net profit for several trades.