Crypto trading can be exciting. Crypto trading can also be disastrous; leaving traders with colossal losses worth thousands, if not more. Now, nobody said trading would be a cakewalk; trading is always a risky game but more so when we are talking about crypto trading. Major reason why cryptocurrency trading could be more dangerous than that of the traditional trading scene is because crypto is ruled by an extremely volatile market. Lack of liquidity and lack of regulation have kept the market unstable. So, while crypto trading can open doors to extraordinarily high returns, it can also leave you with losses- if you are not careful about the common mistakes.
If you are just starting out with crypto trading, it’s mandatory that you know about the most common rookie mistakes to be aware of. The post below will shed light on the typical actions that you should not do to protect your trade.
Not having a proper plan
This is the most mundane mistake a crypto trader could make.
When you are treading an extremely wild and volatile zone like crypto trading, you need to proceed strategically. A lot of blunders happen because traders become clueless mid-way and give in to impulsive and random trading decisions.
Solution:
So, the first thing you will need here is a methodically crafted plan. Don’t think of the long term. Chalk out a plan for say, 6 months. List down the cryptos that you are going to explore for Crypto Trading, how much trading capital you would need to allot, the type of trading method, the trading position and other related facts. The plan will help you to proceed with the trade in a disciplined way that would eventually help to avoid bad decisions in crypto trading.
FOMO
FOMO can lead to disastrous results in any field, and more so when it’s a new and wild area like Crypto Trading.
As social media has always played a significant role in spreading the word about the crypto industry, traders often count on social platforms for insights in trading activities. Social media is undoubtedly a popular platform for crypto-related information but blind dependency on these platforms could lead to wrong crypto purchases.
A lot of traders chase crypto especially because the coin has become viral on social media. With almost 1 in 3 people buying the same coin, these traders develop FOMO and end up buying that coin at a high price. It’s because, given the fad around, the coin would already be raking up high prices. Put simply, if you buy a crypto that has become extremely viral, you will have to pay a high price.
Then, there is another problem. After the coin reaches its peak price, the crypto will invariably fall. So, if you buy in high and the coin falls shortly after, you will have to wait for a long time to trade it.
Solution:
FOMO has never done any good to anyone- do not follow a trend just for the sake of following a trend. Don’t choose a crypto just because every other investor or trader is doing the same. Always check the whitepaper and company website of the crypto before investing in a coin. It will help you to understand the true potential of a crypto.
If you think a viral crypto is actually worth your money, wait till the price takes a fall after the rise.
Getting emotional
This problem is common in all trading sectors, including crypto trading.
crypto trading is a hard-core area where you have no place for emotion or ego. But, unfortunately, a lot of traders make the mistake of getting emotional or egoistic during trading. One common blunder is continuous trading when one is winning. Well, crypto features a wild market. Your position can switch to red from green at the drop of a hat. If you don’t restrain yourself at the right moment, you might end up with huge losses even if you had been winning initially in crypto trading.
Then, sometimes, some traders become desperate to see green if they had been in red for quite some time. Driven by that desperation, they keep on trading continuously waiting for signs of profit. What they don’t realize is that they invariably end up losing a lot of money in between.
Solution:
There are two simple yet highly effective solutions for the crypto trading problems mentioned above.
For the first one, the best solution is to establish an optimum profit level for each interval of trading. According to this principle, you should follow a specific profit level – if your Crypto Trading profits reach up to that level, you should stop trading immediately.
For the other problem, you should set a Stop-Loss limit for crypto trading. According to this method, you will set a bar for losses and you must stop trading for a while if your losses reach up to that level.
Not focusing on risk-reward ratio
For every ounce of profit you would make with crypto trading, you will have to take a certain amount of risk. Thus, you have to make sure that the profit you are making is worth the volume of risk you have taken for the crypto trading.
A lot of traders end up earning less profit compared to the amount of risk they take with a crypto. It’s majorly because they don’t bother to study the risk: reward ratio of their crypto trading beforehand.
Solution:
The solution, again, is extremely simple. All you would need to do here is to calculate risk: reward ratio of trading with your chosen crypto beforehand. The aim would be to make at least $100 for every $50 the trader would risk for his crypto trading journey. The tip is to aim for at least 1: 5 or at least 1: 3 risk: reward ratio.
Frequent trading
The idea of frequent crypto trading might look lucrative, especially when the market seems to be on high but remember- the exchange will ask for fees every single time you will place a trade with it.
Solution:
Try to avoid frequent trading. Draft a plan and state trading intervals. Stick to that plan. There is no point in wasting half of your profits from crypto trading into exchange fees.