The growing interest in cryptocurrencies has attracted the attention of many people to trading, making it more popular than ever. Beginners may think that making money through trading is very easy, but in reality, over 80% of traders lose money due to mistakes related not only to a lack of knowledge but also to an inability to control emotions and stick to a trading strategy. Let's take a look at typical mistakes made by novice market participants and how to avoid them.
Contents:
- Do not fix unprofitable positions
- Excessive trading
- Strive to quickly compensate for losses
- Ignoring risk and money management
- Ignore market conditions
- Trading without using the system
- Blindly copying others' trades
- Summing up the results
Do not fix unprofitable positions
Effective risk management is a crucial aspect of successful cryptocurrency trading, but unfortunately, many beginners often disregard it. In their pursuit of quick profits, many traders fail to follow proper risk management methods, such as setting stop-loss and take-profit orders or determining appropriate position sizes. These misunderstandings can lead to significant losses or even position liquidation.
To avoid such problems, it is necessary to incorporate risk management methods into your trading practice. Setting stop-loss orders will help limit potential losses, and it is also essential to invest only the amount of funds you are willing to lose. Additionally, it is recommended to use partial profit-taking from trades.
Excessive Trading
| Trading Strategies | Recommendations for Beginners |
|---|---|
| Number of Trades | Is not always a guarantee of success |
| Time to Obtain Accurate Signal | Use trading strategies that require time to obtain an accurate entry signal |
| Scalping and Day Trading | Are associated with a high level of risk and are not recommended for beginners |
| Small Timeframes and Insufficient Market Evaluation | May lead to a desire to open multiple trades but require more experience for successful implementation |
Strive to quickly compensate for losses
Newcomers to the trading industry often succumb to emotions and strive to immediately recover their losses. However, thoughtlessly opening new positions right after incurring a loss can only worsen the problems. If your goal is long-term profitable trading, it is important to remain calm and stick to your plan. Taking a break from trading after a few unsuccessful trades can be a much better idea.
Ignoring Risk and Money Management
Many novice traders aim to earn as much as possible and try to increase the size of their positions. However, if a trade turns out to be unsuccessful, they risk losing a significant portion of their deposit and often try to hold onto the position until the last moment, hoping for a market reversal to turn the loss into profit.
Trading professionals recommend risking no more than 1-2% of the total deposit. This means that a trader should set a stop-loss in a way that would result in losing only 1-2% of their funds. Such an approach helps avoid significant losses even after several unsuccessful trades.
Ignore market conditions
In financial markets, there are occasional events that cannot be predicted by any analytical tools. For example, the collapse of the FTX cryptocurrency exchange, which caused a significant drop in prices for most digital assets within a few hours. During such moments, markets can move in any direction, disregarding the data provided by technical analysis. Therefore, traders always need to consider multiple factors and not rely solely on technical analysis.
Trading without using the system
Trading cryptocurrency without using a system can be compared to gambling in a casino. In such a case, the result will be unpredictable and dependent solely on chance.
However, this mistake can be avoided by mastering fundamental and technical analysis, as well as constantly working on optimizing and improving the chosen trading strategy. Unlike gambling, trading involves cold calculation and a systematic approach to transactions: every open position should be meaningful.
Blindly copying others' trades
Copying the trading operations of well-known traders can be attractive to beginners, but it does not guarantee absolute success in the market. Without understanding the context and blindly following other market participants, you deprive yourself of the opportunity to develop and refine your own strategy.
Summing up the results
Even the most experienced traders cannot avoid mistakes, but there are a few rules that can help novice market participants reduce the number and size of losses.
- Always use risk management tools such as stop-loss and stop-limit orders. This will allow you to automatically close a position when a predetermined loss level is reached or when a target profit is achieved.
- Do not open too many trades simultaneously. This will help you avoid losing control over your portfolio and reduce the risk of multiple unsuccessful trades overlapping.
- Select the position size so that in the case of an unsuccessful trade, you do not lose more than 1-2% of your deposit. This will help you preserve capital and avoid excessive losses.
- Do not try to quickly recover losses. It's better to take a break from the market and return to trading with renewed strength. A break will help you regain emotional stability and avoid impulsive decisions.
- Do not rely solely on one analysis tool. Diversifying your approach to analysis (fundamental, technical, statistical, etc.) will help you gain a more comprehensive understanding of the market and make more informed decisions.
- Stay informed about market conditions. Keep track of important news, economic events, and other factors that can impact the market. This will help you adapt to changing conditions and make more conscious decisions.
- Only trade with money you can afford to lose. Never risk funds that you cannot afford to lose. Set financial boundaries and stick to them.
Earlier, we wrote about how to preserve funds when investing in cryptocurrencies, you can read about it here.
