Crypto trading involves trading in cryptocurrency. Just as you trade in the stock market, you can also trade in bitcoins and other cryptocurrencies. It involves speculating on the prices of cryptocurrencies.
The increase in the value of cryptocurrency has led to many traders making a lot of money. This has generated interest in crypto trading with more and more people taking up this activity.
There are some common mistakes crypto traders commit. These mistakes can be very expensive leading to big losses. Knowing about these mistakes is helpful so you can avoid making them.
Common Crypto Trading Mistakes
1. Not having a goal
Why do you want to take up crypto trading? Is it because you want to make quick money? Do you want to accumulate wealth over a long term? Are you getting into it because it is the trend? The answers to these question will help you determine your goal. Taking up trading without a goal is unlikely to give you good results.
Decide your goal and then plan your trading so that you can achieve the goal.
2. Trading for the short-term
You must know the crypto trading market can be very volatile. The market can fluctuate rapidly. If you plan to trade for the short-term, you should be prepared for a roller-coaster ride. You can end up making a lot of money or lose everything.
Unless, you are an experienced trader you should avoid short-term trading in crypto. Stick to trading for the long-term as it helps reduce risk.
3. Getting into trading without a plan
You need a proper plan for trading. Jumping into trading without planning can be suicidal. Crypto trading is not like stock market trading. You need to first understand about the crypto market and review how it works. Without this knowledge, you would be blindsided.
You then need to have a concrete plan in place. The plan should tell you which crypto currency to trade, when to enter the trade, when to exit, when to book profits. With such a plan, you can trade with confidence.
4. Trading on an unsecure platform
Unlike the stock market, there are no fixed exchanges to trade in crypto. There are multiple crypto exchanges where you can trade on and some of them can be dubious. It is important that you review the platform before trading on it.
Check out reviews of the platform to know the experiences of other users before you get in.
5. Trading too often
One of the mistakes new traders commit is to trade too much. Their logic seems to be that many trade equals more profits. Too many trades can increase the number of losses. To compensate for these losses, you will end up entering more trades leading to accumulated losses.
Avoid trading of often. Stick to your trading plan and avoid taking risks since the market is volatile.
6. Going against the trend
One of the techniques used by successful traders is to go against the trend. When everyone is buying, they sell. They do this because they have a system that tells them when to buy and when to sell. They are not going against the trend deliberately. Newbie traders don’t know this and end up believing that going against the trend is a good technique. This can cause serious losses, so avoid this mistake.
7. Avoid tight stop-losses
In the crypto market, you need to be flexible while using the stop loss. The stop loss is the price at which you exit the trade. If you keep this value too close to your entry price, it can get triggered fast. This is because of the volatile nature of the market. Understand support and resistance and then fix the stop loss.
Remember, tight stop losses can lead to multiple losses.
8. Do a dry run
Instead of jumping into trading directly, first do a dry run. Take up paper trading, where you enter a trade on paper rather than actually trading. Then observe the market movement and try to predict it based on reading of charts. Then watch how the trade develops and whether you earn a profit or make a loss.
Do for this for some time so you get the confidence before taking up actual trading.