Before traders become professionals, they go through a long process of trial and error. They find flaws in their methods and refine their strategies, thereby optimizing trades and improving profit margins. The market is dynamic and requires exchange players to adapt and constantly develop their trading.
There is no trader who does not make mistakes. But there are mistakes that need to be eliminated from the very beginning – they are a headache for beginners and the cause of insomnia for traders who trade at a loss. We will talk about them today in this article, as well as tell you how to get rid of these errors.
Mistake #1. I invest all my money
Beginners often use all the available money at once to buy cryptocurrency. This is a gross mistake, because you don’t leave room for maneuver, for example, if you need to average a position after a price rollback or buy other promising cryptocurrencies.
Decision
It is necessary to allocate only free money for the purchase of cryptocurrencies and in no case use credit funds, especially if you are not sure of your trading skills. If you want to use credit funds, it would be safer to try margin trading.
In addition, you do not need to trade the entire amount. Allocate some of the funds for the purchase of cryptocurrencies, and leave some in reserve in case of unforeseen factors, for example, in case of a sharp collapse in exchange rates. Moreover, thanks to free funds, you can hedge risks by opening opposite deals in conditions of increased market volatility.
We’ll talk about this in more detail in the next section.
Mistake #2. I don’t diversify my risks
The second common mistake of inexperienced traders is to invest in only one asset. This significantly increases the risk.
Diversification is one of the fundamental rules of cryptotrading. If you distribute money among several cryptocurrencies, the losses from the fall in the price of one crypto asset can cover the gains from the growth of other coins. It often happens in the crypto market when the prices of cryptocurrencies move in different directions, and during the growth of bitcoin, altcoins become even more expensive.
Therefore, by trading only one asset, you can, firstly, increase losses, and secondly, miss out on potential profits on an uptrend.
Decision
It is necessary to keep in mind the following rule: I allocate only a part of the deposit for the purchase of one crypto asset, for example, 5% – 10%. But depending on the approach, this number can reach 70% of the total invested amount. There is no universal number here – the rule is determined by the trader himself based on his own preferences and risk management. It will be optimal to collect a portfolio of several cryptocurrencies.
Everyone collects their own crypto portfolio based on their individual risk profile. The number of crypto assets is also selected independently. We will not dwell on this topic in detail. Let’s just say that there are 3 types of risk profiles: conservative, moderate and aggressive.
The conservative risk profile is dominated by bitcoin. In such a portfolio, the share of the main cryptocurrency can range from 50% to 70%. The moderate profile is more balanced in terms of the ratio between risk and potential profit: the share of bitcoin may decrease to 30% – 40%, and the share of altcoins and ICO tokens is increasing. The aggressive profile focuses more on promising altcoins and ICO tokens, which can “shoot up” in the foreseeable future.
Mistake #3. I trade haphazardly
Chaotic trading is more like playing in a casino than trading. Of course, the result will also be chaotic and based solely on chance. Undoubtedly, the element of luck is present in any case, but you cannot rely solely on it.
Stock trading, unlike gambling, implies a cold calculation and a systematic approach to transactions. Each position should be meaningful and conducted in accordance with a developed strategy. There may be deviations, but they must also meet the criteria of reasonable trading.
Decision
The list of “pills” for this disease is quite simple and that’s what it takes.:
Start Trading training;
Master the methods of fundamental and technical analysis;
Develop and test strategies, improve them, optimize them, add effective techniques and eliminate unnecessary ones.
Mistake #4. I give in to emotions
FOMO and FUD haunt the trader throughout his life. Beginners are easily susceptible to greed and fear, which is why they regularly make mistakes in cryptotrading.
An experienced trader does not buy/sell everything at once. He reserves part of the amount in case of correction or growth in order to lock in profits and minimize losses.
For example, during a growing market, a pro partially closes positions, while making take profits. This provides him with flexibility in trading and allows him to increase profitability in case of growth or to increase positions by buying cryptocurrency cheaper during a rollback.
Novice traders do not follow the basic rules and trade under the influence of emotions, not understanding the market mechanisms. The result is a situation that can be described as a “hamster cycle.”
Hamsters are players who are almost completely subject to emotions in trading: they buy on the hay, “drain” assets into negative territory when they have already fallen significantly. In other words, hamsters wait for the last moment, when emotions reach their limit, and make losing trades in advance.
Decision
Emotions are the brain’s natural reaction to events from the outside world. But we can control our thoughts and actions. Of course, it’s hard to think if neurotransmitters and hormones are rampant. First, you need to wait until your psychoemotional state returns to normal.
Then you need to look at the situation soberly and analyze how best to act: open a position now or wait for a more appropriate moment. We need to understand what is driving the market at the moment, whether it will continue to grow or whether there is a high probability of correction.
Use additional tools provided by stock exchange platforms: technical indicators, levels, candlesticks, etc.
For example, the RSI indicator allows you to determine overbought and oversold levels, thus helping the trader understand whether the moment is right to open positions, or whether you should wait for the price to roll back or start to rise.
Mistake #5. I’m averaging it to cover the losses
Those who have experienced gambling are familiar with the situation when you want to win back quickly, and as a result, the bet increases: double, triple, etc. It is clear what this can lead to.
Inexperienced traders often fall for this hook. Beginners can average positions indefinitely until they run out of funds on deposit, instead of accepting losses and locking them in so as not to lose more. Even professional players are not always able to successfully trade in a falling market.
Decision
It is important to understand what the current price drop is: a natural pullback or a continuing decline. Traders should learn how to trade on the stock exchange in order to correctly determine the direction of the trend. Averaging positions during a downtrend is too risky, as the price may go even lower. It is better to wait for the signal when it becomes clear that the trend has changed direction and you can open positions with less risk.
Even with an “accurate hit” in a falling market, it is difficult to achieve a good profit. But the probability of losing money increases many times. Learn to understand what caused certain movements in the crypto market, what is the general news background, what factors are putting pressure on the market at the moment, etc.
Conclusion
Cryptotrading is not a dice game, but a discipline that requires constant training and analysis.
To learn how to make a stable profit, you should get rid of the main mistakes and find working trading strategies.
Of course, mistakes cannot be completely avoided. And to reduce them, it is better to find an experienced mentor and learn trading from him.
A professional will not only teach you how to trade cryptocurrencies, but will also help you get rid of most of the mistakes that even experienced traders make. This way you will save time and money instead of going through this path alone, not even realizing that you are making these mistakes.
