With the way cryptocurrency has been gaining momentum, it is but natural for people to be lured by its growing popularity. And why not? It does offer a very lucrative deal with profits and privacy. In 2017, Bitcoin went up to $237.62 million, marking a stupendous high.
The crypto world has a lot to offer. The cryptocurrency market goes through significant variance throughout the course of a day. It moves at a very fast pace as compared to that of stock and forex markets. Owing to its volatile nature, you can make extraordinary profits within a very short span of time. Likewise, you may lose in just a few days. It has been observed that 96% of traders lose while 4% win. So, how does 4% make it possible? Let’s dedicate ourselves to studying what mistakes that 4 % of traders to avoid to win.
Enlisted below are all the probable mistakes that are commonly made by noobs or, for that matter, even the most professional ones in this trade. You need to learn the ways of this trade diligently in order to prevent committing mistakes that might jeopardize your investment.
Not staying updated and blindly following others:
Knowledge (gained from research and applied to make strategies) is the key to manifest success in investment. So, always keep yourself well informed. Do not wholly rely or follow whatever is out there on social media platforms without cross-verification.
Follow the news closely and do your homework. This is a fairly new market, so noobs tend to blindly listen to ‘experts’ from Slack, Medium, Twitter, who direct people when to buy or sell.
Often, these high-profile individuals are paid to promote certain coins.
It is good to listen to what others have to say, but it is best to check facts, figures, go through a weekly newsletter, keep a track on investment tides shift on your own, and then trade cryptocurrency. If needed, form investment groups, be invested in the trade, and research well.
Not knowing how to use a variety of market indicators:
There are indicators such as RSI, MACD, SMAs, EMAs, and many more, that must be referred to, without getting lost in the crowd. Many traders make the mistake of not spending enough time watching the ‘price action’ and then applying indicators. Overload of indicators might pose to be a problem. Be selective. Indicators might overlap as well.
Lack of strategies and over-trading:
Many tend to get into crypto trading, swayed by its enigma, without chalking out a proper strategy in the process. As a result, they end up trading too frequently in their over-eagerness. To make a profitable trade, avoid over-trading. By doing so, you will avert the risk of losing, which otherwise might prove to be problematic for your portfolio. Go for a few trades’ weekly, as that will garner a better return. Plan well without setting unrealistic goals. For instance, do not pressurize yourself to make a certain number of trades every day. This will inevitably cause misjudgment and put you in unwanted risky situations.
Sticking to the same old plan without analyzing previous performances:
Be on your toes. Never get complacent with success. Hence, always, re-evaluate your trading strategy. Go over your past performances, find out where you went wrong, or which tactics worked. Stop yourself from repeating previous mistakes.
Keep testing your strategy. Paper trading, an online trading platform, lets you test strategies without risking any money.
Conducting trade against the trend:
This is a very risky affair. Many experienced traders tend to profit by not adhering to the general trend, but it is absolutely not advisable for noobs, especially when the market is in a downtrend. Do not bet for long; wait for opportunities cautiously between peaks.
Putting stop-loss too close to the initial buying price:
Bitcoin and cryptocurrencies are highly volatile. So, placing a stop-loss close can lead to a loss. This action makes traders lose out on an opportunity that faced a small dip before a big climb. While setting up your stop losses, it is imperative to acknowledge resistance lines.
Use stop loss for every important trade as this will save you from a sudden flash crash.
Getting into Pump and Dump groups:
These groups claim to act in coordination to manipulate the price of a digital asset by enhancing the buying volume before dumping the coin. But in reality, these groups make up stories and post, to indicate their success. Stay away from such groups. Check the trading volume always whenever you come across such groups. Remember, any 24-hour trading volume below $1 million would indicate a red flag.
Selling coins at peak values:
Stay away from selling coins at peak values. Hold and do not sell.
You never know how much a particular token can grow. For instance, those that bought into Ripple (XRP), Tron (TRX), when they were at peaks in 2017, suffered in 2018.
Continuing to add despite losing positions:
Never go on adding additional value to losing positions. Though many suggest buying the dip, it is advisable not to indulge when the stakes are higher, out of personal biases.
For instance, if you did buy Bitcoin’s dips during its decline from $20,000 to its low of $5, 800, then you did find yourself in grave danger. So, do not get into selling or buying emotionally. Rationalize your actions based on evidence.
Though this might seem irrelevant at first. It underlines a lot of fate in crypto trading. People end up setting theoretically impossible goals of multiplying portfolio. Do not expect to double your portfolio within a month. And place only that much money which you can afford to lose. Swayed by high returns, never invest a lot, emotionally.
To err is human. Understand and accept the age-old, time-tested fact that mistakes are a part of life, as it is from mistakes that we learn and set precedence for others.
So, instead of being wary of making mistakes, learning from them (either made by others or yourself), and acting accordingly, is the smartest thing to do.
Be mindful of your moves while investing. Listen to your gut. As long as you imbibe the information around you, remain well-equipped with knowledge, trust your instinct to sail you through.