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10 Most common crypto trading mistakes that beginners make

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Making mistakes is only human. Famous UK film composer, John Powell, once said that “the only real mistake is the one from which we learn nothing.'' So, making mistakes is fine as long as we learn from them and do not repeat them in the future.

Similarly, making mistakes in crypto trading happens on a regular basis. In this blog post, we take a look at the ten most common mistakes beginner crypto traders make.

1. Lack of Knowledge

Many enter crypto trading without proper education or training and start trading immediately. As with anything else, crypto trading requires a level of skill. Cryptocurrencies, such as Bitcoin, may be tempting for new investors due to the buzz surrounding them, but it is important to educate oneself about this asset class and how it functions before investing. Lack of understanding or attempting to trade without a foundational knowledge of cryptocurrency can lead to negative outcomes. It is advisable for investors to research and understand the various crypto projects and their respective company goals in order to make informed decisions.

2. Lack of preparation

Inexperience is closely connected with the lack of trading routine and preparation. It is crucial to dedicate some time to the preparation of the trading plan and the day ahead. In this regard, it is advised to read daily reports to get more familiar with the trading day ahead. In the end, in order to survive in a very volatile crypto market, you need to have an edge. Decent preparation will help you, not just to survive in the crypto market, but also to be more competitive and focused.

3. Trading plan

Having a well-defined and concise trading plan is closely connected with the aforementioned lack of preparation. Experienced traders will always advise you to prepare a detailed trading plan. Even more important than drafting a trading plan is sticking to it.

Markets sometimes move in seconds and making trades based on emotions and sentiment is not advised. So, try to sit down and do your homework before exposing yourself and the capital to volatile markets.

4. Trading diary

Once you have developed a trading plan and implemented it during the course of the day if you’re day trading, consider tracking trades and keeping a trading diary. It is advised to keep a record of an entry, targeted, and realized stop loss and take profit orders, as well as profit/loss recorded. You can also add a comment section to explain why you deviated from the original plan (in case that happened).In the end, a trading diary should be used as a baseline for developing a plan for the next day and a trading style over time.

5. Anticipate news

Markets move based on fundamental or external developments. For instance, certain events or news can have an impact on Bitcoin’s price. As our aim is to capitalize on market movements, traders tend to anticipate the news and the direction in which the asset may go.

A lesson to be learned in this case is that there is no guarantee as to how the market will actually react to the news. The desired approach is “wait and see”, and then make a trade once you have collected more information.

6. Chasing profits

Some traders tend to look at markets that move and get emotional since they “missed out on great returns”. This mistake is closely connected to “emotional trading”, which is arguably the biggest mistake you can make in the trading process. Markets are moving every second. If you missed a move today or yesterday, there will be new opportunities presented to you in the coming hours/days. We are not trading just for the sake of making random trades, hence you don’t “have” to ride every trend.

7. Trading without stop loss

Always having stop-loss orders will help you control risk. Here, it's essential not to move your stop loss further away in order to avoid closing a losing trade.

Avoid having “mental” stop losses as emotions may push you towards moving your stop loss order away. Stop loss order should be seen as an invalidation level i.e. if the price reaches point A, our initial trade idea is invalidated.

8. Emotional trading

As we mentioned earlier, being emotional when trading is arguably the worst mistake you can make. Try to be more patient and less emotional when preparing and executing trades. Trading with emotions is also closely connected to modifying stop-loss orders. For this reason, one of the greatest advantages of automated trading is the non-existence of emotions.

Experienced traders advise avoiding trading bigger trade sizes to be less emotionally charged as the emotional distress often comes with losing larger amounts of capital.

9. Micromanagement

If you look at courses and training on trading, each of them contains a specific part on trade management. While preparation is very important, how you manage the opened trade will decide whether you end in green or red.

For this reason, traders tend to become very much hands-on, which results in trade modification, early close, early exit, etc. For this reason, usually doing nothing is the best thing you can do. One of the best ways to do this is to adopt a “set and forget” approach where you determine and set stop loss and profit orders at the very moment that you enter the position.

10. Poor risk-reward ratio

Before you start trading markets, you should define what kind of trader you want to become. A scalper, a day trader, a swing trader, or trading markets long-term. This will help you calculate your risk-reward ratio (R/R) and apply it in all trades. This way, you define how much you can earn with every dollar you invest. Experienced traders usually advise R/R to be from 1:2 to 1:3 i.e. risk $1 to earn $2.

Conclusion

Starting to invest in cryptocurrency can be intimidating, but avoiding common mistakes can help you gain confidence and avoid significant financial losses. By taking the time to educate yourself and learn from others' experiences, you can become a more savvy investor and better protect your assets.


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