‘Greed is good,’ Michael Douglas’s Gordon Gekko famously said in Wall Street. Maybe it’s true, maybe it’s not. There are people who optimize their greed in a good way and there are those who follow it blindly. Following anything, let alone one’s greed, is a rookie mistake in any field. More so in the world of trading cryptocurrency.
The two most primitive emotions that rule the world of trading are greed and fear. Some succumb to them and drown in their financial disasters; some rise above them and make smart decisions. Either way, if you are new to trading, you might make mistakes. We have recognized the top 12 mistakes that new traders often make. Read through and understand them before diving into trading.
- Following the Internet Blindly
This is the first mistake that most of the new traders make. They don’t use their grey matter well. They hear it from their friends or read on the Internet that trading in cryptocurrency can make them a lot of money and they believe it instantly. Yes, you can make money in the crypto market, but you shouldn’t be oblivious to the fact that you can also lose a lot of money.
Most of the newbies hear the terms ‘cryptocurrency’ and ‘make a lot of money’ together and start researching on Google, Reddit, Telegram, and other sources on the Internet and decide to start trading in cryptocurrency immediately. And when they lose money, they blame the cryptocurrency market and fuel the myth that says cryptocurrency is the ruin of smart people.
Even famous personalities can go wrong and should you take their advice blindly, your investments are sure to go down the drain. When a prominent person promotes a particular coin, for example, be wary and ask yourself: what does this person get from promoting this coin? Is it beneficial to him? Or is it really sound advice? Is it well-substantiated?
Here’s what you should do. Search for (insert coin name) scam/reviews/ criticism on the Internet and make sure you have all the available information before investing. Check out the pros and cons carefully and make an informed decision.
Take the help of the Internet, but make your own decisions instead of basing all your decisions on ‘I got this from the Internet’.
2. Fear of Missing Out
This is a major error in judgement that most people make. They get attracted to a particular coin that’s trending and buy without doing any research. And when they hear something bad about it on the Internet, they start panicking. Result: they buy high and sell low.
Fear of missing out (FOMO) is a peculiar feeling that sets off anxiety and compels you to take drastic measures that might hurt your investments.
You read that a particular coin is going to go up and FOMO compels you to buy it right away. I will miss out this glorious opportunity otherwise. So you buy the coin without much thought or research.
If you don’t curb this impulse and don’t do your research well, you will surely regret later when you suffer losses. Fear of missing out will make you buy everything that’s trending and also make you sell them whenever you see the market changing its colour to red. Panic selling is never a good idea. Neither is buying on an impulse.
Don’t fall prey to these feelings. Calm down and do your research well before buying or selling. Don’t let the market sentiment guide your decisions.
3. Lack of Risk Management
Risk management is one of the most important things in trading and investing. But unfortunately, most traders are averse to it. If you don’t work on risk management strategy, you are prone to a high risk of losing your investment. Remember the movie, Life of Pie? Imagine yourself crossing the Atlantic in a tiny wooden boat with a tiger. Besides, there’s no food and no water. You get the picture, yes?
Sometimes the market is quite irrational. You just have to be prepared. It’s fractious to be careless and then blame everything on the market. You need to learn to develop your own risk management strategy. Have a thick portfolio: have a healthy amount in Fiat/USDT, Bitcoin, and an exposure to ICO investments and alts. Put simply, don’t put all your eggs in one basket.
Here are a few more mistakes that rookie traders make.
a) Stop losses are not set
Most new traders tend to think that anything they buy is either going to go up or just drop down, and then pick itself up and reach the stars. This is the mark of an amateur. They don’t understand how important it is to set stop losses. Stop losses help you limit your losses as per your risk management strategy. Embrace them and your investment won’t be hurt.
Bracket order not only help to set stop losses but also help in booking profit.
Checkout this video to know more about bracket orders.
b) Lack of Strategy to take Profits
Most new traders don’t use an exit strategy for their profits. They get greedy and instead of booking a profit as per their original plan and expectations, they wait for the price of a coin to go further up. This is the typical ‘get rich quick’ strategy, which never works. The market dips and the Internet “analysts” will tell you that it’s just temporary and will recover soon. Although you are still in profit, you wait for it to go up. This cycle continues and before you know it, the market lunges lower than ever. And lower still in the next hour. This is how you suffer a loss. Your profit turns into a loss.
So make sure you always have an exit strategy for your profits. When the price reaches your expectations, get out and book your profit. Stop loss is your safety net.
The market sometimes rides high on human sentiment. Don’t succumb to it. Fear and greed, as already mentioned above, may seem like reasonable things to depend on. But you should have the aptitude to know better. Stick to your strategy come what may. You may miss some, but at least you will control your losses. These will turn into profits soon enough. So be patient and stick to your strategy.
Read Part 2
Read Part 3
Read Part 4
