Common Mistakes of Crypto Trading
Crypto market does not forgive even an honest mistake.”
If you remember this mantra, it will help you not only understand these crypto trading mistakes; you would avoid the blunders like other beginners.
Before we dwell deep into this topic, there is one more thing you should know:
If you make a lot of mistakes in a short span of time (unaware trading), you might never get back to crypto trading again. Fortune has been made in crypto trading and investing, and fortune has been lost.
Those who see this as a mathematical and mindset game, make the fortune, and those who see this as other ways, end up losing their hard-earned money.
Some of the richest people in the world are hedge fund managers (traders), and they got there by following trading strategies and minimizing their losses.
The easiest way to minimize your losses is by learning crypto trading as a system and learning from mistakes.
Do remember, “Learning from your mistakes is smartness, and learning from other mistakes is wisdom.”
Now, this is your chance to become wiser and smarter at the same time.
Why should you listen to me?
Well, I started crypto trading almost two years back, and since then I have been slowly, patiently practising all the wisdom my mentor shared with me. I have been using these strategies, and skills to earn about $30000 in the past few months.
Here are my results:
Even though above numbers look fantastic, I’m yet many years away from being a pro trader. One thing you should know, I also made significant losses in my initial days which was heart wrenching, and rather than giving up, I started learning more, then actively trading.
I moved to paper trading, started with a smaller amount, and the last 2 years of regularity, and following best practices, helped me to get better. Now, I feel confident to share some of my learnings, and hence this guide on beginners trading mistakes.
This guide will help you learn those blunders and mistakes committed by many before you, that made them never see the trading terminal. All of the tips are based out of my experience, and collective wisdom of countless traders before me.
Now, if you are serious about creating wealth for your future, you should avoid these trading mistakes like the Coronavirus. I have also suggested tips to help you understand how you could perfect it.
Moving on…
Crypto trading mistakes New Traders are Prone to Make:
1. Starting with real money before paper trading:
Trading is a skill, just like any other skill , it takes countless hours of practice and patience to master it .
It has ground rules, and one of them is using paper trading before you put the real money. This part is boring for many, but it is perhaps the most quintessential aspect of trading crypto. A lot of trading beginners who don’t mind losing money (gambler mindset), ends up taking real money trade, before honing their skill.
What you need to keep in mind is, the crypto market is not going anywhere, and even if you prepare yourself for two months (or 100 trade) with paper trading, you are not losing anything. So, better prep yourself for the big game with crypto paper trading, before you put in real money.
2. Not using stop loss (Risk management)
Stop losses are the holy grail of risk-management. Stop loss helps you to minimize the losses when your anticipated trade goes south. It does not matter how confident you are about a trade going right, not using a stop loss is the biggest egoistic mistake you could ever make.
Almost all the best crypto exchanges offer this feature to set a stop loss, and some of them also offer a trailing stop loss feature. I will cover about Stop loss and trailing stop loss in the days to come. For now, if you have never used stop loss before, or skip them in some of your trades, well start adding stop loss. Using stop-loss with every trade you take, would help you avoid the #1 mistake crypto traders make.
If you follow this single strategy, one day, you might treat me with a pizza.
Anyhoo, moving on to the next one…
3. Paying high brokerage fees:
Brokerage fees (high trading fees) can eat a significant portion of your trading profits. The key here is to use a broker (exchange) that offers low fees trading, and have high volume and liquidity.
This way, you will end up making more money from trading.
Here are a few exchanges that offer the lowest brokerage fees:
4. Not Seeing Proft/loss as a percentage:
This is another classic mistake beginner traders make.
They often see their profit and loss, as an absolute gain, rather than seeing it as %age gain or loss. Make a habit of seeing each and every trade of yours as a percentage improvement, and you will have a clear picture of your profit and losses.
I use this trading terminal called 3Commas (See 3Commas review), which helped me to see profit and loss of every trade in a percentage basis.
5. Not doing fundamental analysis:
A lot of beginners start by picking a popular cryptocurrency and start trading in them. There are chances that for a prolonged time, you will end up making good money. However, one fine day, the coin dumps like there is no tomorrow, and a single big loss would make your portfolio in red for a prolonged time.
The way to avoid this noobie crypto trading mistake is by doing fundamental analysis of the coin that you wish to trade.
Learn about:
- What does this coin do?
- Future outlook of the Cryptocurrency
- The management team
- Token economy
Based on these parameters, create a list of tokens that you would like to trade. Always remember, trading is unique for everyone, and you need to build your own system.
Here are a list of Crypto analysis tools that would be helpful for you.
6. Trading based on Pump/dump calls:
There are Telegram/Discord groups that provide signals for buying/selling crypto, and do they work?
Hell no!
Especially as a beginner, you are better off not avoiding such pump and dump schemes.
Such groups are not practical; as when thousands of users are acting on the same trading call, the chances of those “Signals” working is bleak to none.
Moreover, the smart money has already moved in or out, and now the beginner trader money (your money) is on the stake.
It may work when the group is small, and the owner is a pro-trader with high ethics. Such groups are paid and are usually very small in size (less than 20). Either way, you need to have the basic trading skills to take advantage of such signals.
Just like other indicators of technical analysis, use these calls as only an indicator, and not an actual trade. The trade situation may change, and you would end up losing more than gaining.
7. Not maintaining a trading journal
This is perhaps the biggest mistake a lot of beginners crypto traders commit. Writing down why you are taking a trade, and analyzing them at later stage helps you to find out:
- Why specific trades are giving excellent results
- Why you are losing some trade
Maintaining a trading journal will help you to improve your trading strategy with time.
Here is how I’m doing it:
You can always use an excel, or even use a paper journal.
Something that has proven to graduate a beginner to the next level of crypto trading mastery.
8. No trading plan:
“Failing to plan is planning to fail.”
You need to have a plan before getting into any trade. That meant you need to know your entry and expirations plan, the amount of capital to invest in the trade, and maximum loss you are willing to take.
Beginner traders usually don’t have a trading plan, and they are ok staying in a loss-making trade for a long time. Having a trading plan before taking the trade will save you from the novice trader mistakes.
9. Revenge trade:
In trading, losses are inevitable.
However, not many users have built the muscle to accept losses, and they end up getting into revenge trade. Such tradings are based on fear and frustration, and highly toxic for your journey as a trader. Often, you would attempt to take riskier trade to cut down your losses, and such attempts are known as revenge trader.
You have to be mindful after losing trade, and know that; nobody ever won 100% of trade. With a proper risk: reward ratio, even winning 40% of the time, your crypto portfolio will stay in positive.
10. Not calculating risk reward:
Me: Why are you getting into a trade?
You: To make a profit. Duh!
How much profit do you want to make? And how much losses you are ok to take?
In nutshell, this is what risk: reward is.
For every 50 USD you risking (Risk), you should aim for winning a minimum 100 USD (reward)
That would make this:
50:100 = 1:2 (Risk reward ratio).
Advanced traders usually recommend :
1:3 or 1:5 risk-reward ratio.
Either way, having a clearly defined risk-reward ratio helps you to avoid getting into risky traders. Also, even if you are losing many trades in a row, your overall portfolio will not be affected in the long run. If you don’t know about risk and reward, check out this video by trader Prateek from Learnapp to learn about risk: reward.
11. Using Margin trading too soon:
Margin trading is borrowing money (that you don’t have) from exchange to get into the trade. The benefit is, you will end up making a big profit (with the same money) if you are right, and big losses if your trade goes south.
Unless you have perfected your spot trading or paper trading, do not get into margin trading.
12. Trading many pairs:
Trading many pairs initially will not only confuse you; you might not be able to perfect your trading skills. My mentor taught me to stick with one pair for the initial 100 trades. Even if I started winning after my 40th trade, he made me stick to my course unless 100th trade.
As time passed by, I could see the wisdom in his teaching, and staying with a single pair for the initial 100 trade, helped me to improve my skills about the rest of the stuff. As I said earlier, trading is a marathon and not a sprint, so you are better off honing your skills rather than trading like there is no tomorrow.
13. Not following your style: Avoid the Herd mentality
Everyone has a unique style of trading, and so is yours. You will discover this with time, and it may baffle you in the beginning, how everyone is trading differently.
For a beginner, it is not uncommon to think like a herd and believe everyone trades the same way. This is not the truth, and you should start creating your own style.
In fact, you should see the beauty in the uniqueness of your trading style.
Conclusion: Crypto trading mistakes to avoid
“To Err.. is human”, and be ready to make and acknowledge some of these beginners trading mistakes. You should simply focus on making fewer mistakes every day, and that’s how you would keep perfecting your trading skills.
As you move ahead in your journey as a crypto trader, you would realize some of these mistakes are actually timeless wisdom. And some of the above-mentioned tips need to improvise, based on your current situation.
Either way, your goal should be to minimize your losses, focus on wins, and build your unique style.
As I learn more, I will update this guide with more tips and ideas. So, you better bookmark this, and revisit again in the near future.
If you like these tips of “Common Mistakes of Crypto Trading”, do consider sharing it with your friends who got into crypto trading recently or looking to begin.
