“No mistakes are allowed in the cryptocurrency market, even if they are unintentional.” Always keep this rule in mind to avoid making mistakes when trading cryptocurrencies. Before we go any further into this topic, one more thing that you must fully realize is that if you make a lot of mistakes in a short period, you may never go back to trading cryptocurrencies again.
And if you want to make a fortune with cryptocurrency trading, you should view it as a mental process based on accounts. Otherwise, you will end up losing your money. Experienced traders have made their fortune by hedging and following trading strategies that help them increase profits and minimize losses. Perhaps the easiest way to reduce your losses is to learn from trading mistakes. And don’t forget the rule: “When you learn from your mistakes, you are smart. And when you learn from the mistakes of others, you are wise.”
In this article, we will go over the scariest mistakes that beginners make in the world of cryptocurrency trading, so you will have the opportunity to become intelligent and wise at the same time. But you should be well aware that becoming a professional in cryptocurrency trading takes patience, learning from mistakes, and following the best trading practices. And don’t forget that just as you can make huge profits from trading, the possibility of losing still exists.
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Below is a list of mistakes that you must avoid being successful in the world of cryptocurrency trading.
The scariest mistakes in cryptocurrency trading
1- Start trading using funds before trading
Trading is a skill like any other, and this skill requires a lot of practice and patience to master. There are basic rules for trading, one of which is to first start with paper trading (a simulation of trading without using money) before you risk your money. It may seem boring to some, but it is indispensable when trading in the cryptocurrency markets. Also, make sure to get rid of the gambler mentality that might lead you to trade with your money before you prepare well and hone your skills.
2- Not using stop-loss orders (risk management)
Stop loss is the core of risk management; with it, you can minimize losses when trading volatility is expected. Not using stop losses is the biggest mistake you can make, which is often caused by arrogance and overconfidence. So, make sure to use stop-loss orders as they are an effective way to help you survive and achieve success in the world of cryptocurrency trading.
3- Paying high brokerage fees
High brokerage fees can eat up a large portion of the profits you make from cryptocurrency trading. The solution to this problem is to use the services of a broker that gets low trading fees, has a high level of liquidity, and has a large trading volume. Thus, you will end up making more money by trading. Here are some of the trading platforms that offer low fees:
- Binance (0.1%)
- CEX (0.25%)
4- Not looking at profits and losses as a percentage
It is another classic mistake that beginners make in the world of cryptocurrency trading. So, be sure to look at the results of each trade as a percentage so that you can paint a clear and honest picture of your profits and losses. You can use the 3Commas platform to help you do this.
5- Failure to perform adequate analysis
When entering the world of trading, some may choose one of the famous cryptocurrencies and start trading in it. Although there is a chance of making good profits in the long run, there is a possibility that the value of this currency will depreciate and consequently incur a huge loss. To avoid this silly mistake, you should thoroughly analyze the digital currency you wish to trade. This analysis will help you know the reality of this currency, future expectations, the team behind it, and the probabilities of profit and loss. Based on this analysis, you can create a list of cryptocurrencies that you want to trade. And don’t forget that everyone has their unique trading style, so you should have a particular trading style that meets your needs and matches your goals.
6- Trading on misleading information
Some groups exist on different platforms, and these groups are circulating disinformation that is a great deal of exaggeration. As a beginner trader, you should avoid this type of information unless it comes from an experienced and trusted trader and via a small group (no more than 20 people). In all cases, you must have the basic skills of trading with which you can benefit from the information you obtain. As with other technical analysis indicators, you should use this information only as indicators because trading conditions may change, and you may incur huge losses.
7- Not keeping a trading diary
This mistake is perhaps the biggest mistake many beginners make in the world of cryptocurrency trading. So, when you make trading transactions, record all the information associated with it, and analyze it later. This will help you know the following:
- Reasons why some transactions produce good results.
- Reasons for losing some trading transactions.
Over time, you will be able to improve your trading strategy. You can keep this notebook in the form of a paper notebook or an Excel file.
8- No trading plan
“The failure in planning will lead to planning for failure.”
It would help if you had a plan ready before you start trading in the cryptocurrency world. This plan should include determining the capital to trade, the maximum loss you can afford, and the right time to start or stop trading. Preparing a plan in advance will help you avoid mistakes that beginners make.
9- Trading to compensate for losses
“Trading losses are inevitable.”
There are a lot of traders who have not gained enough ability to absorb losses. Thus, when they incur losses, they initiate new trading transactions to compensate for their losses. These transactions are often built on fear and frustration, as well as negatively impacting your trading experience. So, when you get lost in trading, you should approach it very wisely and realize that no trader is making money all the time without incurring any loss.
10- Not calculating the returns arising from the risk
When you decide to make a trade, you need an explicit formula for calculating the reward versus the risk. For example, you should aspire to get at least $100 (return) for every $50 you invest (risk). Therefore, the risk-reward ratio is 50:100 i.e., 1:2. Experienced traders recommend this ratio between 1:3 and 1:5.
In any case, determining the risk-reward ratio will help you not to enter into high-risk trading transactions. Also, if you incur any losses, your portfolio will not be affected in the long run.
11- Early Margin Trading
Margin trading is the borrowing of money to enter into a trading transaction. The advantage of this type of trading is that you can make big profits if you trade correctly. But there is still the potential for heavy losses if things go wrong. So, be sure not to resort to margin trading before you prepare well and hone your skills through paper trading or spot trading.
12- Trade in a lot of currency pairs
You may be able to trade in a lot of currency pairs at the beginning, but it is preferable to stick to trading only one currency pair so that you can achieve profits in the long term; trading in the cryptocurrency market is more like a marathon than a short distance race. Therefore, you must gain experience and hone your skills to be able to continue trading successfully.
13- Not following a unique style (herd culture)
Everyone has a unique style of trading. You will discover this over time. You may be surprised when you see everyone around you applying different methods of trading. So, you should completely stay away from the application of the herd culture in trading, and at the same time, you should work on developing your trading style that meets your needs and achieves your goals.
Finally, you must realize that making mistakes is human nature. But the lesson is to acknowledge these mistakes and benefit from them and not repeat them in the future. Make sure that your goal is to minimize losses, focus on making gains, and develop your trading style.