When you start trading crypto for the first time, you will no doubt make a few beginner mistakes. You may make a few unnecessary moves, be led too much by your emotions, and change your strategy more than a few times. It’s all part of the learning process as you find your style and develop your own crypto trading principles.
But you don’t have to make all these mistakes yourself. Learn from others instead with this quick overview of some of the common crypto trading mistakes beginners make.
I. Trading without knowledge
As with anything in life, to maximize your potential you need to do your homework, prepare yourself, and start on a journey of continuous learning. For crypto trading, there’s no shortage of tutorials, guides and even full online courses to get familiar with how crypto markets operate.
But that’s just to build a basic level of skills such as learning how technical indicators work. You need to build a habit of reading market analyses by different crypto trading analysts to master the art of reading charts.
II. Making moves without direction
Trading impulsively can help you gain a few points, but it does nothing for a long-term sustainable approach to crypto trading. You need to have a plan in place to determine what your goals are and how you want to achieve them.
Experienced traders do this all the time, by reading daily reports on the markets and preparing detailed crypto trading plans. This goes for both short-term and long-term traders. But the most important thing about making a plan, is sticking to it. Crypto markets are volatile, and letting your emotions take control of your trades is a good way to make the wrong move at the wrong time.
III. Never revising the trading plan
Sticking to your plan is not the same as never changing your plan. Things change in the market that may affect your plan. The difference between ditching and revising a plan has to do with the depth of thought and reasoning that goes into the change of direction. If you respond immediately without any homework, you’ve ditched your plan. If you delve into fundamental and technical analyses from a diversified range of sources to reshape your plan in light of new circumstances, you’re revising.
A lot of beginner crypto traders find it useful to keep a trading diary. In this log, you keep records of the plan you’re implementing, tracking trade orders and gains you’ve made (or not). Keep a comments section to explain why you changed the plan in case that happens.
IV. The news will move markets immediately
Markets are moved b many things, and current developments in the news certainly play a huge role from a fundamentals point of view. But that doesn’t mean there will be an immediate response nor does the news guarantee a market reaction. It’s good to take the news as a source of information and anticipate what direction the market will take, as long as you understand that it’s not a given.
Sometimes the better approach is to ‘wait and see’, and make trades once you have collected more information or initial bullish/bearish forces start making a play.
V. Catching up with “perceived losses”
Sometimes you miss a trading opportunity. In fact, this will happen all the time. A common mistake traders make is to try and catch up with the “losses” they perceive to have made. That’s when they start trading with emotions as their main motivation.
Markets move all the time. If you missed an opportunity, there will be many others coming your way. Don’t trade for the sake of trading. Instead, stick to your plan, perhaps revise it a little if we’re talking about a huge change in the market, and be ready to seize the next trading opportunity. You don’t have to ride every single trend.
VII. Flexible stop loss orders
Stop loss orders help you control risk to a certain degree. Keeping a mental note of stop losses is not enough, as it’s easier to change the goal post every time the market starts moving towards that direction. Stop losses should be seen as a way to invalidate your trading idea, so it’s essential not to keep moving the stop loss order further away. Sometimes, your trading idea doesn’t pan out, and stop loss keeps you from the falling into the sunken cost fallacy.
Emotional trading is related to changing stop loss orders. Therefore, setting your limits early on will make it easier to keep them. Automated trading with bots is a way to take emotions out of the game and stick to a specific strategy without fail, but this should only be done by crypto traders who’ve been in the charts long enough. Crypto trading bots require a more advanced level of trading knowledge.
Are you ready to put your skills to the test?
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