What are 2 common mistakes amateur traders make?
First mistake: Believing that what goes down will eventually go up
Searching for crashed tokens, in hopes of it going back to its glory days is not the right approach. Token prices are generally determined by the market’s supply and demand. A token that has lost favour and traction will find it difficult to overturn the situation, mainly because the lack of a “first mover”.
There are many examples of tokens never returning near its peak prices or dropping even further in value from their original prices such as Aventus, Kyber Network and Wanchain.
Second mistake: Basing buying decision off price of token in comparison to another
This is definitely one of the most common mistakes which new traders make — comparing token prices instead of looking at target token’s market cap. The market cap is important as it indicates the demand of the token as well as the amount of money already invested into the token. Calculate a token’s market cap by multiplying the total number of circulating tokens with the token’s price.
Another factor to consider is the trade volume of the token which indicates the popularity of the token with traders, and the validity of the token price. The volume is indicative of how much of the market valued the token at its current price.
As shown above, Ripple may seem like a cheap token to buy but it is solely a psychological effect. Here’s why: the reason for Ripple’s low price is its huge amount of total circulating tokens reaching up to 41 billion tokens, compared to Bitcoin’s 17 million tokens or Ethereum’s 100 million tokens. Despite the similar market cap between Ripple and Ethereum, Ethereum’s trading volume is actually more liquid than Ripple by five times.
Therefore, when evaluating tokens to purchase, avoid using the price of a token as a sole indicator.
After knowing the common mistakes, what are some things you should know in order to make better trades?
Mastering the order book
To some traders, just knowing how to use ‘limit order’ or ‘market order’ seems sufficient, but is that all there is to the order book? There are different functions such as stop loss to minimise loss and setting sell levels to take profits.
Before you are able to efficiently use the ‘stop loss’ feature or setting sell levels to achieve your targets or prevent loss, graph analysis is needed.
Graph analysis
Above are examples of Japanese Candlesticks, which are one of the many technical analysis tools, that could aid cryptocurrency traders by providing key data to predict direction, momentum, support and resistance of the token price.
Besides Japanese candlesticks, there are also various forms of chart patterns such as The Hammer, The Bullish Engulfing Pattern, The Piercing Line, The Morning Star and The Three Soldiers.
Doing analysis and mastering the order book are just two of the basic methods used to make better trades. However, these are just technical aspects of trading.
Breaking out of the emotional barrier
Besides having to do adequate research and mastering the right techniques, as human beings, emotional factors also play a huge part to trading.
Fear of loss is one of the many and most influential emotional states which traders often experience. As with most emotions, fear of loss affects judgement and derails traders from initial plan of action.
Keeping your emotions in check is extremely important — especially after an unsuccessful trade or the regret one goes through after selling a mooning coin too early.
After reading the above pointers, are you, as a new trader, willing to put in the time and effort to master good trading techniques without even being assured the returns?
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