Crypto trading mistakes – Forex Academy

When it comes to crypto trading, there are a number of mistakes that all of us are making. Some mistakes are okay, as they don’t really affect our accounts or our emotions, others though can be horrible, so bad that they have a massive effect on pretty much everything that we do. Let’s take a look at some of the horrible mistakes that we see happening quite a lot and what we can do to try and avoid them in the future.

Trading the Same As Forex

Crypto trading looks very similar to regular forex trading, in fact, it uses the same trading platforms and the same charts, from the outside it looks pretty much the same. In reality, the way that it works is very different, but a lot of people fall into the trap of trading crypto the same way that they do with forex. There are some fundamental differences to them, firstly the amount of money being traded is a lot lower, so the markets are a lot more volatile, the markets are also not quite as open as you would think when it comes to crypto.

In the forex world, a single trader can’t make much of a difference, but when it comes to trading, a single trade can cause the markets to shift. The markets are controlled by the people rather than the markets controlling them, so the price is all based on what people want it to be. There are also much larger movements, both up and down, making it far riskier, so you need to ensure that you understand it before you trade. You cannot use the same tactics with crypto trading as you do with forex trading.

Trading Too Much

The trade sizes when it comes to crypto trading vary a lot, 1 lot does not always mean 1 coin. For some it does, things like bitcoin, a 1 lot trade may be trading 1 bitcoin, but if you trade XRP, 1 lot may mean 100 XRP, this can drastically affect your trading. You need to understand how much it is that you are going to be trading. Due to this, many crypto traders start out trading far too much. One major issue with placing trades that are too big is the volatility that comes with crypto trading. The markets are a lot more, so when you have a large trade, one that is too big for your account, as soon as the markets shift the wrong way and they can shift a lot, your account will be in trouble.

Not Watching the News

The crypto markets can be heavily influenced by news about the coin that you are trading or even a coin that you are not. Things like a big business taking up a currency into their service, or a country banning crypto can have a huge effect on the markets. You need to keep an eye on what is going on in the crypto world, if you do not, you may get caught out as you are treading a coin that has just been banned and the price will drop, but you won’t know that and you will only be greeted by the aftermath of a potentially blown account. There are a lot of sites out there that are quick to get the news up, use them regularly, even if it is just when you are on the toilet, as long as you are keeping up to date, you will be better protected from any sudden movements due to news events.

Not Using Risk Management

Risk Management is a key part of forex trading and it is also a key part of crypto trading, if you are trading without any form of risk management then you are asking for your account to blow. It is far riskier to trade crypto without a risk plan than it is forex too. The markets move so much that a single trade could very quickly blow and account if there aren’t things like stop losses in place, it is also vital that you understand how much you’re trading, as we mentioned above, different trade sizes mean different things depending on the coin that you are using. Risk management is key to keeping your account alive, yet so many people are convinced that a coin will go up that they trade without one, only to find the price drop and they lose quite a lot of money in the process. Always use risk management, no matter how sure you are of a trade, as nothing is guaranteed.

Trading With A Small Account Balance

One of the things that make trading so accessible is the fact that many brokers are now allowing you to trade with as little as $10. That is great but it does come with its own problems, if you want to trade successfully then you need a lot more money, in fact with some brokers a $10 account will allow you to place a single 0.01 lot trade on bitcoin, but as soon as the market moves down, even a few pips, the account will blow. You need a lot more to trade well on crypto than you do forex simply because the markets move a lot and the amount that you are trading is a lot higher, especially as you do not get as much leverage when it comes to crypto trading. So if you want to start, start with at least a few hundred, not the minimum that any broker will allow you to open an account with.

Putting All Your Eggs In One Basket

This is a phrase that you probably heard before, that you should not put all of your eggs into one basket. This basically means two things here, firstly that you should not put your entire balance into a single trade, and that you should not only trade single crypto coins. If we look at the latter, there are a lot of coins available, many of the crypto-focused brokers are now offering 30+ different crypto coins to trade, so there is a lot of variety. It is recommended that you do not trade only one, you need to diversify. Trading only one means that you are tied to its performance, if it is not doing well, neither will you, but if you diversify, even if one does not do well, others might, which will mean that you will negate any losses from the first coin. Try and trade more than one, but not too many for it to overwhelm you.

Those Are some of the horrible mistakes that we see a lot of crypto traders doing, the good thing is that most of them are very easily rectified by making a change to your trading plan or by simply changing your view of things. We all make mistakes when it comes to trading and we will continue to do so, what is important for us and the development of our trading is that we are able to recognise those mistakes and to learn from them, to adapt so that in the future we can do better and be a much more profitable trader overall.

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.