Most people think that crypto trading is easy money, but it's not. It takes time and hard work to become an expert in some sphere – the same applies to trading, too. A trader is a profession and a serious approach is needed here. Of course, there will be some mistakes while studying new subjects. In this article we’ll mention a few problems that can happen in crypto trading with beginners, as well as with professionals.
Mistake #1. Lack of analysis
Due to absence of knowledge, some people can’t understand a moment when an uptrend is replaced by a downtrend, for example. It might become a psychological trap, which will lead to a series of catastrophic events – lack of solid analysis makes it impossible to realize an objective picture of what is happening on the market.
A similar situation occurs when the market hits the “bottom”. The majority loses faith in growth: some sell every token and leave the market, others decide to wait and do not buy until everything grows by hundreds of percent.
Solution: learn theory.
Dow Jones theory, the basics of technical and fundamental analysis, and any information about cycles in financial markets will be a good help. Looking at the chart using large timeframes - days, weeks and months. You can find a lot of information about the basics of trading in the public domain, or on our website.
Mistake #2. Greed
Greed in trading can occur in different ways. Many come to the cryptocurrency market because of the illusion of easy money, but the problem of the majority is a lack of understanding of the mechanisms that move the market.
Or, for instance, some coin, TFUEL, for instance, has grown 1000% after a pump (hypothetically). After that, TFUEL profits of 20/40/50 and even 200% seem too small for some people. They start waiting for more, and as a result, the price turns around and goes into the red.
Buying cryptocurrency for the entire deposit is also a sign of greed. When the price drops, such a trader faces big losses, with no way to reduce the average entry price at lower values. Another example is FOMO – Missed Opportunity Syndrome. The price of the asset has already increased, some traders decide to make a purchase, because they think the growth will continue. As a result he might lose a lot of money.
The mistake is the desire to earn a lot of money quickly but this does not happen. Fear and greed are destructive emotions, especially for a trader.
Solution: rational approach.
Greed arises from lack of experience and fear of not being on time. Forbid yourself to make any decisions based on emotions and haste. It is important to understand that opportunities are constantly appearing and disappearing in the market. Before entering a trade, analyze the token, study price predictions, smart contracts and justify the reasons for entering. Don’t forget to learn every small thing about chosen coin. If we continue our example with TFUEL, then you even need to research what is the difference between THETA and TFUEL.
Mistake #3. No trading strategy
Uncertainty, nervousness, throwing from one thing to another are signs of a lack of a trading strategy or an indication that you have built it incorrectly. When you act according to a plan, you cannot have an unforeseen situation, and the risks are manageable. The plan must take into account both profit and possible losses.
A trading strategy should be flexible from the current market situation. For example, you are in a position and the price is going in your direction, everything is perfect, the goals are almost achieved, but suddenly information appears – the project whose coin you are trading has been hacked. In such a situation, you will have a very limited time to make a decision. Blindly following the plan in such a situation will lead to losses.
Solution: create a strategy.
You must have a well-thought-out trading strategy that takes into account all possible scenarios, and your actions must be brought to automatism. In the event of force majeure, it is necessary to make a decision quickly, depending on the circumstances on the market. As an alternative, there is an automatic crypto trading, but it’s tricky too.
Mistake #4. Lack of money management
What is money management? It is what should be included by default in your trading strategy. It involves splitting the deposit for different trading strategies, and deciding on the amount to enter the asset. Also, money management involves choosing places for trading and storage of assets. Professional traders do not recommend trading on only one exchange, use several.
Plus, many people make the mistake of spending whole deposit in one transaction – it will not be possible to equalize the entry price in the event of a decrease. For that you’ll need money management.
Solution: take care of money management.
Make money management an integral part of your trading strategy, otherwise it can turn into a big problem.
The main causes of losses are psychological factors, such as greed, suggestibility, fear and underestimation of the market. It’s not scary to make mistakes, it’s scary to turn mistakes into part of your trading system. What mistakes have you made in your trading life? Let’s discuss them in the comments below!
If you want to learn more interesting facts about crypto then don’t forget to check out our blog! You might like our articles “Main Changes in Crypto Regulation” and “Cryptocurrency Exchanges”.