Crypto Trading is a difficult business. Small traders buy crypto to make huge profits in short period of time. However, their strategies often backfire due to little or no experience. This results in recurrent losses. Here are 10 common mistakes small traders make. You can succeed in trading if you avoid them at all costs.
1. No Preparation or Training
Training is necessary to understand the market moves. Crypto is a volatile industry. The market swings too quickly. If you have no understanding of factors that cause the market to move, then you are in for big losses.
You can avoid this mistake by taking proper training from the experts. Develop an understanding of the financial world and the markets. It will help you stay calm in the storm. Moreover, crypto trading training will guide you on which coins to invest in and how to use stop loss for minimizing the damage during the bear market.
2. Unreal Profit Expectations
There is a myth about the crypto market that people become millionaires overnight by investing in cryptocurrency. While there are few cases of small traders making huge sums of money in a short period. But, it is an exception and not the norm. Trading is not a ‘get rich quick’ scheme. You cannot make a 50% profit over every trade. This is an unreal expectation that can waste your capital.
To avoid this mistake, keep your expectations from the market, real. Invest with the mindset that you can lose some or the whole of your initial capital. Close the trade when your expected profit is made.
3. Too Emotional
As the saying goes, ‘Time is your friend, Impulse is your enemy.’ This holds true in trading markets. The impulsive behavior of small traders harms them in both the long term and short term. Sudden unexpected gains make them excited and greedy. It leads to the error of judgment resulting in loss of money. Likewise, sudden unexpected losses make small traders fearful. Consequently, they lose here too.
Also Read: Best Automated Crypto Trading Bots
Traders need to put their emotions aside while trading in the crypto market. They should come with a trading strategy and stick with it at all times. This helps in staying on the right course while the market moves unexpectedly. Some traders also use a trading bot for emotionless trade. Bots are a good tool for trading in crypto markets.
4. Risking Too Much
Trading is a risky business. Investing the money which you cannot afford to lose will make your heart skip a beat over every unfortunate market swing. Thus, it is ideal to invest only a percentage of your capital which you can easily lose.
Small traders can also manage risk by setting a loss percentage. If you can afford a 3% loss in a day, you should discipline yourself to stop at that point. Do not keep trading when you are losing more and more.
5. No Trading Plan:
Beginner traders often make the mistake of entering the market without a plan. They are just in it to make a profit. Without planning, trading becomes abrupt and decisions are made under an adrenaline rush. As a result, small traders move from one strategy to the other, amplifying the damage.
You can avoid this mistake by having a clear plan. Know your exact entry and exit points, the amount of capital to invest in the trade, and the maximum loss you are willing to take.
6. Trading without Stop Loss:
A stop-loss is an offsetting order that gets you out of a trade if the price moves against you by an amount you specify. Trading without it is a huge mistake. A sudden downtrend will severely hit your portfolio if you have no stop-loss in place.
You should use stop loss on every trade at the right points. This helps you stay safe in the market.
7. Relying on False Signals
Even a hugely successful trader cannot give you correct signals all the time. So, completely relying on signals is a mistake that small traders often make.
Avoid this by doing your own research. Look for fundamental reasons that are causing the price of a coin to go down. This will help you with trading and also improve your understanding of how markets work.
8. Falling for Pumps
Small traders with little or no experience fall easily for market pumps. You may hear a social influencer talking too much about an asset’s potential and think that this is a good investment. But, these hyped-up assets are often pumped up by a few people. So, they are dumped as quickly as they were pumped.
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You can avoid falling for pump and dump by doing your market research. Don’t fall for big names. Invest in assets with strong fundamentals.
9. Putting All Eggs in One Basket:
Betting all your money on a single asset is never a good strategy. You can lose all if the asset goes down in value. You can avoid this fate by diversifying your portfolio.
Having a portfolio made up of multiple investments protects you if one of them loses money. It also helps protect against volatility and extreme price movements in any one investment. Also, when one asset class is underperforming, another asset class may be performing better.
10. No Record Keeping:
Small traders make the mistake of not keeping track of where their profits and losses are going. They are unable to view the bigger picture. So, it is recommended that you keep all records in one place. Analyze them against your initial trading plan. As a result, you can come up with a better plan for the future.
This was a brief list of the top 10 common mistakes made by small traders. You can avoid these mistakes by being more mindful and detail-oriented in your trading journey.