The topic of mistakes made by beginners who decided to try their hand in trading is not new and has been discussed many times in the communities of stock, commodity and currency traders.
Now it’s time to take a look at the missteps often made by those who venture into the wild world of cryptocurrency trading for the first time.
No experience in trading on exchange platforms
After learning the basics of trading, newcomers often run into difficulties due to a lack of understanding of the technical part of trading. This requires practice with an order book, transactions and orders, the optimization of trading strategies and other aspects of cryptocurrency trading.
All these actions should be performed on demo accounts. Almost all exchange platforms have the same interface structure and set of options.
Additionally, you should learn the professional terminology, ticker symbols, etc.
Lack of trading strategy
Most beginner cryptocurrency traders open deals based on the current market situation, without having a pre-planned strategy. This is a very big mistake, which sooner or later will lead to disastrous consequences. It is necessary to think over and articulate in detail the rules of your trading strategy. The strategy should clearly indicate when and how much should be entered in a given market situation. And it is also necessary to establish rules for closing a transaction, when it is worth taking profit or losses, including under unforeseen circumstances. And of course, you should follow these rules in a disciplined manner.
Trading with one asset
Beginners, as a rule, tend to prefer trading with one asset they like, while not paying attention to other cryptocurrencies. However, it should be remembered that the market is complex and multifaceted.
And in those moments when your favorite asset is in a drawdown or does not show growth, other cryptocurrencies will be offering excellent opportunities for profit. Therefore, traders using the portfolio approach are always more profitable in the long run than one-asset-traders.
Impulsive, emotional trading
Let’s imagine – a trader held Bitcoin for a long time but as soon as the market started to collapse, he gave in to panic and closed his position at a big loss. A week later, the market recovered, and the trader missed out on all the profit he could have made.
In addition, there are other factors that push traders to make mistakes. Often it seems that all that is needed to be successful in trading is to enter and exit the market in time. But in fact, price is only important relative to other fundamental indicators. It is worth looking not only at the past movements of an asset, but at the prospects of cryptocurrency itself too.
All or Nothing technique
The “Go Big or Go Home” technique is typical for inexperienced traders on exchanges. They often open orders, spend their entire stock of funds and close their positions. An experienced trader with professional skills will not do this.
Competent crypto traders often go out and enter the market in stages. For example, an experienced speculator, who has previously opened a short position, will first sell 10-15% of the transaction volume, then a little later 14-18% and then proceed to act in the same way as long as the trend allows.
It turns out that trading in stages is much more productive than closing a position instantly. Capital, gradually accumulating from staged profit taking, can be used in new transactions. Beginners tend to want their rewards immediately, and in getting them they restrict themselves from further profit opportunities.
Not using stop loss orders
Beginners are very often unable to bear with significant losses. Therefore, it’s worth setting stop loss orders in advance at levels where the price is most likely not going to reverse. Levels where you need to exit both losing and profiting positions should be established in your trading strategy, which should be followed strictly while you are trading. At the same time, you should not close a losing transaction instantly. Quite often, the price of cryptocurrencies will reset before new movement trends begin.
Trading without analysis of the cryptocurrency market
A frequent mistake made by newcomers trying to enter the market as fast as they can is beginning to trade without doing any preliminary analysis. First you need to evaluate the global situation in the cryptocurrency market. It is impossible to formulate good conclusions when studying charts with small timeframes or short-term charts. For cryptocurrencies, the most representative time periods for basic analysis show the past 5-7 days.
Entering wrong addresses during transactions.
This mistake is very common. Yes, crypto wallet addresses are almost impossible to remember because of their length and the use of various characters, but you have to carefully copy this alphanumeric sequence and check the address symbol by symbol.
Greed
Often a trader can make a decent profit from a transaction. But for some reason, this is not enough for him, and he wants to make even more.
An incredible number of traders lose their money solely because of greed. Often a trader has the opportunity to make a decent profit from a transaction. But for some reason, this is not enough for him, and he does close his position to collect his sum. While an asset trends green, the profit potential seems limitless, but in cryptocurrency trading everything can get turned on its head at a snap of the fingers.
You need to understand that if the market gives you money, then you need to take it and enjoy the moment. Slow and steady wins the race here, so stick with your strategy and don’t try to fly too close to the sun. It’s not worth it, especially when you are just starting out.