Before traders become professionals, they go through a long path of trial and error. They study top crypto investment funds, find flaws in their methods and improve their strategies, thereby optimizing trades and improving profit margins. Since the market is dynamic, it requires traders to adapt and constantly evolve their trading. One of the best platforms for this purpose is Chainbroker.
There is no trader who does not make mistakes. But there are ones you have to get rid of right from the beginning. Today we will talk about how to avoid them.
Mistake 1. Investing all the money
Money management is the backbone of trading and a must-have in any crypto trader's inventory. Based on how you allocate your budget and when you plan your purchases, you need to calculate the amounts allocated for investment and trading.
Beginners often use all available capital at once to buy cryptocurrency. This is a gross mistake, as you leave no room for maneuvering, for example, if you need to average your position after a price pullback or buy other promising cryptocurrencies.
You need to allocate only free money to buy cryptocurrencies and don't use credit funds, especially if you are not confident in your trading skills. If you want to use credit funds, it would be safer to try margin trading.
Also, you don't need to trade the entire amount. Allocate some of the funds to buy cryptocurrencies, and leave some in reserve in case of unforeseen factors, such as a sharp collapse in rates.
Mistake 2. Not diversifying risks
The second common mistake of inexperienced traders is to invest only in one asset. This significantly increases the risk.
Diversification is one of the fundamental rules of crypto trading. If you allocate your money between several cryptocurrencies, losses from a fall in the price of one crypto-asset can outweigh gains from the growth of other coins. It is not uncommon in the crypto market for prices of cryptocurrencies to move in different directions, and when Bitcoin is rising, altcoins become even more expensive.
It is necessary to keep in mind the following rule: allocate only part of the deposit for the purchase of one crypto-asset, for example, 5-10%. But depending on the approach, this number can reach 60% of the total invested amount. There is no universal number here — the rule is determined by the trader himself based on his preferences and risk management. It is optimal to assemble a portfolio of several cryptocurrencies.
Mistake 3. Trading haphazardly
Chaotic trading is more like a casino game than trading. Of course, the result will also be chaotic and based solely on chance. Undoubtedly, an element of luck is present in any case, but you can not rely solely on it.
Exchange trading, as opposed to gambling, implies cold calculation and a systematic approach to transactions. Each position must be meaningful and held in accordance with the developed strategy. There can be deviations, but they must meet the criteria of smart trading.
The list of “pills” for this disease is quite simple and here’s what it takes:
- start training in trading;
- master the methods of fundamental and technical analysis;
- develop and test strategies, improve and optimize them, add effective tricks, and eliminate unnecessary ones.
Always remember that crypto-trading is not a gamble, but a constant work that requires full dedication and development.
Mistake 4. Giving in to emotions
FOMO and FUD follow traders throughout their lives. Beginners easily succumb to greed and fear, which is why they regularly make mistakes in crypto trading.
An experienced trader does not buy/sell everything at once. He/she leaves a part of the amount in case of a correction or growth, to fix profits and minimize losses.
For example, during a growing market, a pro closes positions partially, setting take-profits at the same time. This gives him the flexibility to trade and allows him to raise profitability in case of growth or to increase positions by buying the cryptocurrency cheaper in case of a pullback.
Emotions are the brain's natural reaction to events from the outside world. But we can control our thoughts and actions:Wait until the psycho-emotional state comes back to normal.
Look at the situation soberly and analyze what the best course of action is: to open a position now or wait for a more opportune moment. You need to understand what is currently driving the market, and whether it will continue to grow or if a correction is more likely.
Use additional tools provided by trading platforms: technical indicators, levels, candlesticks, etc. For example, the RSI indicator can indicate overbought and oversold levels, which will help traders decide if this is the right time to open a position, or if they should wait for the price to pull back or go higher.
Mistake 5. Averaging to cover losses
Those who have faced gambling are familiar with this situation when one wants to win back quickly, and as a consequence, there is an increase in rates: doubling, tripling, etc. It is clear what it may lead to.
Inexperienced traders often fall for this hook. Beginners can average positions ad infinitum until the deposit runs out of money instead of accepting losses and fixing them in order not to lose more. Even professional players are not always able to trade successfully in a falling market.
It is important to understand what the current price drop is: a legitimate pullback or an ongoing decline. Traders have to learn how to trade on the exchange to correctly determine the direction of the trend. It is too risky to average positions during a downtrend, as the price can go even lower. It is better to wait for a signal when it is clear that the trend has changed direction and positions can be opened with less risk.
Hoping these tips will help you avoid mistakes. We wish you success!