New traders will have to deal with the emotions that drive the market, greed and fear, that if left unchecked will lead to financial disasters.
We identified the top 9 mistakes that new traders make so that you won’t follow the same dreadful steps.
1 . Don’t think with their own head (blindly follow what the internet says)
The first and foremost mistake that new traders make is the main cause of all the following mistakes.
They simply do not think with their own head.
They might have heard from a friend or read on the internet that trading crypto can make them a lot of money — with the caveat that they might have left out the part that you can also lose a lot of money. Therefore, after some research starting from Google, moving on to Reddit, then 4chan and all the way to public or private groups on Telegram or Discord, they decide to buy some crypto following the advices and opinions of the Internet.
Realize that a fair bit of online advice, even from “famous” personalities, are shills for their own investments. Always be wary and ask yourself what does this person have to gain from promoting a coin and if what he/she says is well substantiated.
Protip: Try searching for (Insert coin name) scam / criticism / downside, to ensure your information stream has an even share of the other side of the story before making your decision to buy.
So dear new trader, if you’re even thinking of doing something like this, please stop now. You can be lucky a few times, but sooner or later you are going to have an unpleasant reality check.
Do your own research on all the aforementioned channels, but make your own decisions based on something more solid than “I read it on the internet”.
2. FOMO Buying high and Panic selling low
One of the main consequences of the aforementioned is that new traders buy high and sell low.
Fear of Missing Out is that specific feeling that triggers sudden anxiety, tunnel vision and a YOLO attitude that is going to hurt a new trader real bad.
You just read on the Internet that coin “x” is going to go up soon? FOMO makes you buy it right here and now, otherwise you’ll miss this ‘once in a lifetime opportunity’.
More often than not, FOMO will leave you either bagholding for a long time or with a realized loss to get out of that heavy bag — following the above buy high sell low “strategy”. FOMO works the other way around too; when you see all the red market and everything dumping, FOMO makes you panic sell right away without thinking and once again very likely the market sentiment will turn around and you just took an unnecessary loss.
3. No Risk Management
All traders should be familiar with the concept of risk management. If you don’t have any risk management strategy, then you’re bound for an extremely high risk and a very low probability of success — pretty much like crossing the Pacific Ocean on a wood raft. With no food. Or water. You get the idea.
Trading gives people all the necessary tools to be successful or at least to protect themselves from a market that is irrational by nature.
Protip: Try to have a well hedged portfolio, this means a healthy amount in Bitcoin, in Fiat/USDT and a decent exposure to high volume Alts and some ICO investments.
A. No set stop losses
Yet, new traders somehow think that whatever they buy is either gonna go up forever or just dip a bit and then recover and shoot to the moon.
Once again this is very far from reality. New traders usually don’t use stop losses. Stop losses are not an enemy but a friendly tool to help you limit your losses according to your own risk/reward strategy.
B. No strategy to take profits
New traders also don’t use an exit strategy for profits. Greed will make you think that your coins are going to go up and up and that are going to make you very rich in a very short period of time. Then the market dips a bit and you’re still in profit, but greed — and the Internet — will still tell you that it’s temporary and will recover soon. Next thing that you know you’re at break even, but greed still tells you that “it can’t go any lower than this”. You probably guessed the next part. It can go lower than that and did go lower than that. And lower. And lower. And your profit became a huge loss because a) you didn’t have a strategy to take profits and b) you didn’t have a safety net to get out with minimal damage, aka a stop loss.
Successful traders remove emotions from their trading. They know that fear and greed will prevail under certain circumstances, therefore they use a predefined strategy that removes the thinking process while actively trading. No matter what, they stick to the strategy. They will miss out some gains, they will have some controlled losses, but they will be much more successful on the long run than the YOLO trader.
Protip: Try laddering into and out of positions rather than buying / selling everything in one go.
4. No basic knowledge of TA
Every trader should at least have a very basic knowledge of technical analysis. In this case the Internet is a goldmine of countless resources for TA.
TA is not a recipe for success but certainly helps against potential disasters.
Protip: Check out Tradingview to assist in your charting journey.
5. Don’t take Bitcoin price and trends into consideration when trading alts
Bitcoin is the main cryptocurrency and it will stay so for the foreseeable future, consequently it drives each market cycle.
Nonetheless new traders don’t take Bitcoin price and trends into consideration when trading alt coins.
In an uptrend Bitcoin will gain dollar value and, since the alt coins are pegged to Bitcoin, their dollar value will increase as well. This does not mean though that their Satoshi value (if you don’t know what a Satoshi is or SATs, go Google it) will increase too. More often than not on a Bitcoin bull run, like the one we saw in November/December 2017, alts will lose value in Satoshi. Simply put, traders would have had bigger gains if they kept their funds in Bitcoin rather than in alt coins.
The same thing happens in a major downtrend like the current market. Bitcoin price goes down and it drags down alt coins’ dollar value as well. On top of that, traders are exiting their positions from the weak alt coins to preserve their wealth, causing alts to drop their value even further.
Another common mistake, linked to a couple we analyzed already, is overtrading.
Internet talks + FOMO + no risk management = overtrading.
And also fear + greed = overtrading.
New traders will jump in and out of their positions, taking losses and losing count of their moves to jump on the next big thing.
Needless to say, overtrading can quickly drain your assets. If you find yourself in such scenario, just step back and take a break for a while.
If you’re trading randomly, you will likely end up overtrading. Remember to have a precise strategy and set goals.
7. Portfolio Under / Over Diversification
New traders will generally enter the crypto world by buying Bitcoin or maybe Ethereum. Then they will start googling stuff like “best cryptocurrency to invest in”, or “next 100x coin”. This is the beginning of that journey that will make the new traders fill their portfolio with some of the finest shitcoins, leading to an extreme portfolio diversification. While some diversification is good for hedging purposes, a highly diversified portfolio is very hard to keep track of.
Under diversification is dangerous as well; it’s common knowledge not to put all your eggs in one basket because if that basket breaks you’ll end up with no eggs.
8. Buying the “cheapest coin”
One more common mistake is to buy the cheapest coin they find on coinmarketcap, following the thought pattern that Bitcoin was once worth pennies and now it’s worth thousands so if I buy something worth pennies now it will be worth thousands later on at some point. Wrong.
New traders generally overlook the Circulating Supply and the Market Cap of a coin.
Let’s take Cardano for example. Cardano today is worth $0.098585. Its circulating supply is 25,927,070,538 (that’s almost 26 billion), which is more than 1000 times more than that of the Bitcoin circulating supply, resulting in a total market cap of $2,556,018,231, which is 50 times less than the current Bitcoin market cap.
Considering those numbers, to move the price of Bitcoin by $500 it takes $10B. Conversely, to move the price of Cardano by $500 it would take a staggering $13 trillion — currently more than 20 times the total crypto market cap.
So it’s very unlikely that we will ever see Cardano in the thousands — or even hundreds — of dollars range.
9. Trying to dollar cost average alts with no future, or low volume
Finally, last but not least, new traders will try to dollar cost average alts with no future.
While dollar cost averaging should be part of every trader’s risk management strategy, buying the dip, and then the dip of the dip and so on, in a low volume altcoin this can lead to a large part of your portfolio becoming illiquid and is generally not advisable unless you like to have a collection of worthless coins.
With all the “mad gains” you see possible in crypto, it’s understandable that it’s tough to keep a level head. Armed with these tips, you can build a solid trading mindset.
Remember that for such upside to exist, a high level of volatility is only natural. Enjoy your wins and learn from your mistakes.
Crypto is very much alive, for all of the bad press that’s been going around lately, we are about 48% higher than where we were in August 2017.
Buy the dip and lambos for all!
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