Cryptocurrency Trading: Common Mistakes to Avoid
To say that crypto market is volatile means to say nothing. In respect of Forex and stock markets, this market movements are significantly high. Furthermore, during the day, the course can set a dramatic variance.
This volatile situation creates lots of profitable opportunities for short-term periods. And here is where most often lots of people hunt for profits and instead, mostly face huge losses. Thus, to make crypto trading easier and manage your portfolio more effectively, use crypto portfolio tracker tools.
Getting to trading, let’s discuss common trading mistakes.
The usage of Numerous Indicators.
For any starter in trading, one of the first things is to learn using market indicators. Many people mistakenly think that they must completely master all the indicators before they become profitable in trading.
Indeed, several productive traders generally rely on only the volume plus price candles to trade and conduct a technical analysis does not play an essential role for them. Yet, the most decisive indicator is the price action. Just look at the price, get comfortable with it and then commence using indicators.
Nevertheless, remember no indicator accurately predicts the future and using lots of indicators, especially when they show opposing pictures can cause you to miss what could contrary be a profitable trade.
Trading Too Often and Against the Trend
In the initial period of trading, you can be eager trying to complete as many trades as you can thinking that more trades means more money, right?
To be a productive day-trader, you are not supposed to trade constantly. In fact, several effective trades per week are enough to yield solid profits. By adjusting the frequency of the trades, you can avoid enormous losses damaging your portfolio.
One more important “rule”; never set daily fixed number of trades as an objective because this can result to taking sub-optimal decisions and taking useless risks. Rather, you can base your trades upon the attentively selected rules and then you deviate from these rules frequently, when it is the right time re-evaluate your trading strategy.
What about trading against the trend?
Even if some advanced traders often get profits while trading against the trend of an asset, amateurs will most likely suffer tremendous losses.
The Usage of Dense Stop Losses
Many crypto-asset exchanges propose stop-loss feature. It’s a quite useful tool which trader can use protecting himself/herself from heavy losses in the right conditions. Yet, lots of beginners mistakenly place their stop-loss too close to the initial buying price.
When setting the stop-losses, it is crucial to know support/resistance line. Under normal conditions these support lines are hard to break. Keep in mind to use a stop loss for practically every significant trade. It can save you from an unexpected flash crash.
Avoid Pump and Dump Groups
Pump and dump groups perform in coordination to manipulate the crypto-asset price by significantly rising the buying volume before unsuspecting traders and bots get in on the action. Yet, the reality is not that glowing. Pump groups practically never give profits. The group admins buy cryptocurrencies in large amounts set their sell orders at an accordingly higher price than their entry point, but low enough that group members buy it, hoping to make a huge profit.
Before Trading Test Your Strategy
It is critical to remember testing your strategy before trading in order to check its effectiveness and the way of implementing it. Currently, there are online trading platforms allowing to evaluate strategies without putting money at risk. These platforms are called “paper trading”. With these platforms you can strictly prove your strategy before implementing it with real money.
The Usage of Dreadful Risk-to-Reward Ratios
When it comes to trading, an appropriate risk-to-reward ratio is 1 of the decisive factors. Commonly, amateurs lean to believe that the logical solution to record profits in trading is by making winning trades surpass the losing ones. Nevertheless, you can have more lost trades but still come out with a positive balance.
Targeting Enormous Profits
Being avid in trading can result to tremendous losses and financially destroy you. Despite the fact that you are in a very profitable position, it is critical to stop at the right time as every significant growth is followed by a not less significant down. Also take to an account that nowadays recording a huge portfolio growth like in previous years is practically impossible.
For a simple reason. Now the crypto market isn’t as profitable as it was several years ago. Yet, there are enough chances to make profits. You only need realistic financial objectives.
Adding to Losing Positions
Another disastrous mistake can be adding to losing positions. Even though you are convinced in your choice, it’s not recommended to increase the losing positions. Base your belief on facts, rather than intuition not letting your personal biases cloud your judgment.
To conclude, before taking any action in trading, consider to avoid aforementioned mistakes, as they are the main reasons new traders fail. Also, do not forget about using crypto trackers. To find out more about these useful tools, check this complete informational cryptocurrency portfolio tracker guide.