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Serious Crypto Trading Mistakes and How You Can Avoid Them

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The crypto market has made people millionaires overnight. It has also caused others to lose a large amount of their portfolio in the same time span. And it’s stories of the former that have newbie traders jumping on the ship every single day. However, the same reason some have gotten uber-lucky is the same one others have found themselves at the cleaners. 

What’s the reason? Well, the sheer unpredictability of the crypto market makes the markets subject to dramatic changes in the blink of an eye. This volatility means when dealing with the crypto market, lots of extra caution is needed. 

In this article, we’ll detail exactly how. It’s an examination of the most serious mistakes traders are not to make, and how you can avoid them to stand a better chance with your trades. 

#1. Relying on too Many Indicators

Trading indicators are one of the most obvious tricks to get ahead in any kind of trading – at least at first. Soon enough, though, you could easily find yourself lost in the myriad of available indicators available. From Bollinger Bands to MACD, to Stochastic, to EMAs, to RSI and plenty more, it’s so easy to get caught up without any tangible benefits. 

Most beginner traders and even experienced ones often make the mistake of thinking that they must understand all these indicators. Apart from indicators of having the ability to contradict each other, some overlap, meaning there’s no need to use so many. 

The reality is, many of the most successful traders get on while relying very little, if at all, on indicators. 

Instead, they observe things like volume and price action – which give them lots of clues on how to make the next move. 

#2. Trading as Much as You Can

In most crypto trading circles, the mantra is the more you trade, the better your chances. This couldn’t be further from the truth. Success in trading arises from strategy and well-executed trades. 

When you don’t overtrade, you can avoid losses caused by, let’s say, the market being down. Also, things like setting for yourself a fixed number of trades that you must meet daily are actually harmful because they force you to make decisions just to tick the list. In such a scenario, it’s very easy for you to take uncalculated risks that could lead to losses. 

What to do instead? Use your well-curated strategy to enter those particularly promising trades. Remember that your strategy need not be written in stone. What worked last week, last month, and so on might not necessarily work next time. So always change up your strategy in response to market realities. 

#3. Going Against the Trend

Trading against the trend is not a no-no. Many successful traders do that all the time. However, it’s harder for a beginner to pull this move successfully. For instance, it would be folly to buy when the market is bearish. While sometimes it can rebound, most times, profitable opportunities are highly uncertain. 

In most cases, when the market is on a downtrend, better to go short than long. When you become more acquainted with the intricacies of the market, you can make bolder moves. 

#4. Placing The Stop Loss Order Too Close

Stop losses are an indispensable tool of modern-day trading. They can help you limit losses in a security position. But in certain conditions, a stop-loss order can actually hold you back. An example is when you place the order too close to the buying price. 

In the highly-volatile cryptocurrency market, the price can go practically any direction in a very short time. As such, it’s very easy to trigger a stop-loss order before the price has stretched sufficiently. The scenario of the market taking a deep before climbing again is all too common. That’s why you need to give room for the price to test both support and resistance levels. 

#5. Acting on Hype

The cryptocurrency space is riddled with hype and “pump and dump” groups, caused by entities who pose as highly knowledgeable in crypto trends when in actuality, they are scam groups. Pump and dump is a crypto scam where a trader(s) hypes a coin as the next big thing, creating excitement about it in the market. 

The idea is to get unsuspecting traders to rush and purchase the coin. When this happens, the hype masters will offload the coin. Because it’s now flooding in the market, it loses value, and the unsuspecting traders are stuck with a valueless coin.

When you spot this kind of hype, take it with a generous pinch of salt. Do your own research before you invest in any coin. Reliable websites and reputable traders’ social media accounts are good places to start. 

#6. Diving Headfirst

You wouldn’t plunge into new waters without knowing the depth, so why would you do it with your money? One of the surefire ways to lose money in crypto trading is to blindly follow a strategy without knowing the mechanics of it. 

Instead, practice your strategy before applying it to real money. Most trading platforms will allow you to conduct demo trading, trading with virtual money instead of real cash. It’s highly recommended that you use these to rigorously experiment before trading in the real world. 

#7. Being Overconfident

The most successful traders will tell you confidence is part of their recipe. Confidence means carefully calculating a move and proceeding to execute it. And while confidence is great, overconfidence is not. 

Overconfidence can cause you to take unnecessary risks and lose money. It can make you enter trades at every turn while ignoring price direction. Fear is not the only emotion causing traders to lose money. Overconfidence is another. And both are detrimental to the process. 

So what should you do? Be confident, instead. One way to cultivate confidence is to study the markets regularly. The crypto market can change in an instant, and when you have beforehand knowledge of what to do in such a scenario, you can make a better-informed decision. 

One thing to know is that what might work when the markets are falling might not be applicable when they’re on an upturn. Another is that the overall market sentiment should outweigh yours at any point. If the market is falling, it makes no sense to go in and make a trade. Better wait for when the trend is more bullish. 

Another way to be confident? By staying on top of the news. The crypto market is highly sensitive to the news – and this means the news of many events – not just finance news. This could be the outcome of a major election, a natural disaster, and so on. And mind you –  this news never has to be true. Even a rumor could send the markets flying in the opposite direction. What does this mean? Sentiment analysis is key, too. If your sentiment analysis game is on top, then you’ll be more confident in your trades. 

#8. Having a Poor Risk-to-Reward Ratio

A risk-to-reward ratio could make the difference between miserable trades and profitable ones. Most beginner traders think scoring more profitable trades than losing ones is what makes a successful trader. In truth, you can lose more than you win and still come out on top. 

For instance, let’s say you have an 80% winning strategy. Even with such a strategy, a terrible risk-to-reward ratio, such as 1:1, will still lose you money. On the other hand, you can have a 40% winning strategy and with a healthy risk-to-reward ratio like 3:1, flip the tables in the best way. 

What does this mean? Better to have a superior risk-to-reward ratio with a lower winning strategy than a huge strategy with a poor risk-to-reward ratio. 

#9. Being Greedy

Humans are naturally predisposed to want it all – whenever possible. This, in its bare bones, is being greedy. And greed in trading is one of the surest ways to lose. 

Every trader will tell you of a time they entered a profitable position and held on for too long – waiting for it to double or triple. Then the markets changed at the flip of a coin, and they lost the position. What this means is sometimes it’s best to lock in a trade even when it’s rising, because a flash crash is an everyday occurrence in the world of crypto. And you simply never see it coming. 

So the key is to be realistic with your trades. Try to increase your portfolio methodically, rather than trying to make quick gains. 

#10. Entering More and More Losing Positions

This is when a trader insists on buying a  digital asset even though it’s clearly falling in value. In cryptoverse, it’s easy to get attached to a particular asset and continue to buy, even though the asset is taking a beating. While it’s good to trust your judgment, let your decision be based on evidence rather than personal bias. 

Go by this rule: if the market is in a general bearish mode, it’s a good idea to ‘buy the dip.’ But if the asset has been on a downtrend for months, even years, better hold out. Generally, buying into a position of strength works better than buying the dip because a currency is dear to your heart.

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