No one likes to make mistakes but everyone does. I suppose that’s one inescapable dichotomy of human nature, and one that new crypto traders suffer through as they learn the ropes.
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Yes, mistakes are part of learning and we must go through them to build up our tolerance, find new paths, and expand our horizons. But most humans aren’t completely foolish. We have the capacity to learn from others and listen to the wisdom of those who found themselves in similar circumstances and cared to share their experience so we could avoid those pitfalls. That doesn’t always work either but it softens the blow – a little.
There are five key mistakes that I’ve observed time and again, especially with new traders. There’s a popular quote: “It is often said that the definition of insanity is doing the same thing over and over and expecting a different result.”
If we were going to wax philosophical, I might say that applies to all traders; the novice and the seasoned, because there are going to be times that you go into the trading arena and nothing you do, no matter how long you’ve been at this practice, goes right. And yet you keep coming back to trade. Is that insanity or determination and stubbornness? But I digress.
Let’s just go over the five common mistakes that new crypto traders make.
Trading Too Much
There is no law of trading that states trading too much is good for you; whether it’s diluting your portfolio with too many tokens, or putting too much of your capital on the line.
You know that saying, “Too much of a good thing isn’t.” This applies to new traders. A common mistake is wanting a piece of every crypto pie that’s out there. Oftentimes, that leads to an overextended amount of your principal funds in a volatile market.
That leads us to the second common mistake.
It is great to diversify because we never want to put all of our investment eggs into one proverbial basket. But piggy-backing off from trading too much is the idea that you must diversify into all markets. This is not true.
As a new trader, find one or two that you can properly track, analyze, and test the market with your accrued knowledge. If you’re doing well, you can become more aggressive with your trades, or look to add a new asset. Don’t be the Jack of all trades and master of none. There are way too many choices, especially in the crypto market. Between Bitcoin, Ethereum, fintech based-tokens, security and utility token, your head will spin if you diversify too much.
The people who wake up one day with the idea that they’re going to dive into trading without so much as learning best practices is doomed to fail. In fact, if you wanted to do that, save yourself the heartache and just donate your money to me, okay?
Strategy is an all-encompassing, detailed roadmap that includes your trading journal, research, market tools, an entry and exit strategy, and the finer details within trading, like shorts, futures and stop-losses, just to name a few.
If you’re jumping into trading without putting some thought to it, you might as well be gambling at the roulette table.
No Exit Plan
I just barely touched on the exit plan, which should be part of your broader trading strategy. This is something that new traders often don’t think about. In fact, I’d say that they probably lose too much or quit out of frustration rather than actually having an exit plan.
As human beings, we have a lot of things that trigger us. This is especially dangerous when we’re trading because emotions get in the way. Revenge, or spite trading, reeks of desperation and often leads to more loss.
Your exit plan should have acceptable losses built in to your trade strategy. It should never dip into your principal funds and weaken your overall portfolio. If a crypto you’ve been trading has pivoted, the best policy is to pause, reassess and plan next steps; always knowing where the exit is in case of emergency.
Never fall in love with your assets. There is no point getting emotionally attached to a cryptocurrency because it will never love you back. You have to be like a surgeon who dives into an operation with only the task at hand. There’s a reason why they don’t operate on the people they know and love. Because mistakes happen and it triggers an emotional response that could be more harmful to their patient and detrimental to their emotional well-being.
Obviously, you are not a robot, but there are plenty of tools that can make your trades cold and calculated so you can earn a profit instead of getting angry or cry about the loss. You need that degree of separation to make hard decisions.
Remember what I said about having an exit strategy? Even when an asset looks like it’s mooning, having trailing stops is a great idea because eventually, the rising support collapses and prices fall. In trading, to be calculating and cold is good. Spare your emotions for a friend.
To sum it up, new crypto traders have a lot to learn. Find the asset that most interests you and do the research on them. Dive in with a couple of cryptocurrencies just to familiarize yourself with how the exchange or brokerage works, plus their tools and trade options. Know how much you can afford to lose. Have an exit strategy. Don’t fall in love with a crypto asset or its trend.
Eventually you will get into a rhythm and create a more solid schedule. You might even consider eventually being a full-time crypto trader if this is something you’re good at. But, if you’re on day one, you’ve got a long way to go.
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