Avoid Cryptocurrency Trading Mistakes
In this article, we ’ll go through how to avoid the most common mistakes in cryptocurrency trading. Many traders agree that the hardest thing to become a winning trader is’t to maximize your winnings but rather to minimize your losses. This article will walk through ten trading mistakes, one-by-one and how to avoid them.
- Only Invest What You Can Afford To Lose
- Diversify: Never Put All Your Eggs In One Basket
- Don’t Try To Make Profit In Every Trade
- Don’t Be Too Greedy
- Don’t Have Fear Of Missing Out (FOMO)
- Maximize Your Winning Trades
- Always Learn From Your Trading Mistakes
- Minimize Your Losses And Set Stop Losses
- Reduce Emotions And Stay With Your Strategy
- Sell The News And Buy The Rumors
1. Only Invest What You Can Afford To Lose
Make sure you only use capital you don’t need for necessary things in your everyday life. Trading capital should just be money you can afford to lose. Start with a small investment and deposit more if you have more money left. Don´t invest all your savings at once into a trading account.
2. Diversify: Never Put All Your Eggs In One Basket
This can be hard if you only believe in one cryptocurrency. However, you should try to diversify your portfolio anyway. You can invest 80% in the coin you strongly believe in and 20% in another coin. Try not only diversify coin but also the underlying technology of each coin. For example, if you invest in Bitcoin you might want to look for another cryptocurrency that doesn’t use Proof-of-work.
3. Don't Try To Make Profit In Every Trade
Don’t try to make profit in every trade. Take losses. For example, let’s say you buy something for $100, set a stop loss at $98 and take profit at $107. This means you can be wrong in 75% of your trades and only need to be 25% correct in your trades. Of 4 trades, you will lose $2*3 and win $7*1.
You will lose $2*3=6
Wou will win $7*1=7
4. Don’t Be Too Greedy
This one is hard. If you have taken a large risk you need a large profit. However, you need to take profit at some point. A good way to interpret this one is to sell portions of your trade. Instead of selling 100% of your holdings, you can sell off 20% and wait a few days.
5. Don’t Have Fear Of Missing Out (FOMO)
FOMO – fear of missing out when a cryptocurrency rushes extremely fast. Don’t invest when a coin has surge 30% in a few hours because you have fear of missing out the next 30% for the next few hours. Most of the time you will invest right on the peak and sell when you’re afraid of losing your investment.
6. Maximize Your Winning Trades
Don’t sell as soon you’re breaking even or have a small win. If you took a risk with a trade, make sure your winnings exceed the risk you took for the trade. Otherwise your losses will exceed your winnings. However, you must balance this against greed.
7. Always Learn From Your Trading Mistakes
No one is perfect and no one makes profit on every single trade. However, always try to get better results and ask yourself if you could have done anything to improve the result. Don’t make changes to your strategy all the time but if you see that the same mistake frequently comes up then you need to make a change.
8. Minimize Your Losses And Set Stop Losses
For active trading you need to minimize losses to a very small amount. This is extremely important if you’re a high frequency trader since you need your capital all the time for new trades. For long-term trading this isn’t so important since you must handle downtrends and upward trends for the long-term uptrend. If you’re a long-term trader you can buy small amounts at peaks and buy more at dips. Read more about trading strategies in our article, cryptocurrency trading strategies.
9. Reduce Emotions And Stay With Your Strategy
Don’t change your strategy because not everything went as expected in every trade. Set a strategy and follow it. Re-evaluate your strategy if you see too many mistakes. Don’t panic sell, don’t FOMO and don’t be greedy. If you only invest what you can afford to lose and you diversify there’s no reason for such behavior as panic sell off and similar. Read more about different strategies in our article, cryptocurrency trading strategies.
10. Sell The News And Buy The Rumors
This is a common and old expression related to trading other markets like stocks for example. It has been seen that the market often overreacts when real news is released and underestimates rumors and speculations.
Conclusion On How To Avoid Cryptocurrency Trading Mistakes
In this article, we went through 10 common mistakes done by losing traders. Of course, there are more than 10 mistakes you can do when you’re trading. Cryptocurrenices in particular is hard to trade because it’s such a new asset with less developed tools, strategies and high volatility. However, these factors also make it interesting since you can experience huge gains at the same time. Learn to handle the risk and avoid the most common trading mistakes when you’re trading cryptocurrencies. Remember to always learn from your mistakes and optimize your strategy.