Crypto trading is difficult, especially if you are new to it. We dive into the seven common mistakes new traders make and explains ways to prevent them. Read more!
When most of us bought our first crypto, we had no idea what we were doing. Some of us even spent months making sense of those red and green lines on charts. A few mastered the art, while the others failed miserably.
It is safe to say that many of us made mistakes as a beginner in this market, including the author of this article! Mistakes are the teachable moments — the inevitable lessons that make you a better trader.
We want to prevent newcomers from making the same mistakes that we made. Here is a list of seven common mistakes that you must avoid as a beginner in crypto!
Mistake 1 – Getting Rich Quick!
That’s why you will always hear the actual crypto gurus say, “don’t invest what you can’t afford to lose.” Crypto is not a get-rich-quick scheme. You must first accept the associated risks and understand that your investment will take a long time to earn profits. Crypto is not the gold mine that will make you a millionaire overnight.
Mistake 2 – Trading Without a Plan
Another commonly seen mistake is when novice traders enter a trade without a plan. If you buy a coin with the hopes of making quick profits, there is a possibility that the trade goes against you.
Often, new traders fail to account for this scenario and end up having to improvise when a trade turns sour. Having to improvise in a losing trade is the last thing you want to do, as the emotions will cloud your judgement significantly. To mitigate this, you should enter a trade with both the winning and losing scenarios in mind. This takes the improvisation out of the equation.
Nevertheless, sticking to your plan will be incredibly hard. The only way to get better at executing these plans is by experience. Trading requires a strong mindset.
Mistake 3 – Trading With Bigger Position Size Than You Should
Sometimes, when the market turns against you, you must survive instead of trying to make money. It is better to close trades sometimes so you don’t lose more than a few percent of your portfolio. Taking lower risks will allow you to trade more objectively and protect you from adverse market events.
A lower-risk strategy will limit the size of your wins, but as we established, crypto is not a get-rich-quick scheme. Build your account slowly - the compounding effects will kick in eventually.
Mistake 4 – Opening a Trade Because "the Market Has to Reverse Eventually”
Many new traders try to go against strong trends because they feel it is overextended. In such cases, just remember that the price may continue to move in one direction a lot longer than you think.
If going against the trend is something you want to learn more about, look into mean-reversion strategies. They can be immensely profitable, but only when you know what you are doing. If you are not there yet, do not swim against the tide.
Mistake 5 – Copy Trading Influencers
This is a sensitive topic many people prefer not to talk about. But hear us out! If you want to be a successful trader, copying other people is not going to get you there. Moreover, if you do decide to copytrade, you will be fully at the mercy of the trader you follow. There are endless things that could go wrong — things beyond your control.
Mistake 6 – Constantly Switching “Systems”
During the first months of your trading journey, you may find yourself desperately trying to find a system that works for you. As a result, many traders find themselves jumping between different forms of analysis and indicators in an attempt to find that golden ticket.
These constant jumps between methods will set you back. It takes time to build a system and to refine it to the point that it works for you. If it doesn’t work in the first few trades, that does not mean the indicator is useless.
If you want to build a working trading system, invest the time to fully understand it first. Study how prices react to the indicator and find patterns in price behaviour. At some point, you will find something that works. If that does not happen, you can still move on to something else. The core of addressing this mistake is to give tools the time they need to prove their worth.
Mistake 7 – Trying to Trade News
Many new traders are quick to notice that the market tends to react violently to big news events and are naturally drawn to trying to trade news as it drops. While news can provide excellent trading opportunities, it requires a special kind of skill to nail it.
Generally speaking, new traders are better off avoiding trades in response to the news. In our experience, most of the news is already priced into the market when it hits the presses. As you can see in the example below, the price takes a nosedive after the news and then quickly comes back to the level we were at before the news hit. This shows people do react to the news, but the market does not really care.
These were the most common mistakes we could think of. The author has made most of these mistakes himself. It is better to recognize your faults and learn from them. We hope you learned something new today and will use this knowledge to sharpen the saw.