The budding new field of trading can be very exciting, but no one starts off perfectly, not even expert traders. And, while trading in crypto, one must always be prepared for trial-and-error situations that might come up.
However, the constantly jiggling up and down trends of the crypto market can really take a toll on your capacity to make the right decisions at times. Especially, if you are new to the trading game. So, be sure to take a look at these 7 commonly made trading mistakes to dodge hurdles in your trading journey.
- Choosing the wrong platform
In your checklist, number one should be choosing the right platform that is robust and compatible with the forex market. The “right” platform will provide solid educational resources, access to news, a reliable real-time feed, an easy-to-read trading interface, and a variety of trading signals. The software should also include access to major currency and cross-currency pairs, as well as minor and exotic pairs that interest you.
- Risking too much
Usually, newcomers let their fear of missing out (FOMO) take over, encouraging excessive risk. This is a classic convulsion that begins when new traders see missed opportunities and wonder how much they would have gained while forgetting how much they could have lost. Let’s say you lose 50% of your capital in a single trade. Now you have to double your money on the next trade to make a profit. This is not sustainable, especially if you are just starting out in the forex market. Only trade what you can afford to lose.
A good rule of thumb: don’t risk more than 2% of capital on a single position or combination of correlated positions (pairs that move together). The percentage may seem small, but it is an effective methodology to stay in the game long enough to develop profitable skills.
Another benefit of using this rule of thumb is that you’ll stay calm and cool the next time you’re stuck in a losing trade. It also discourages taking good trades too early out of panic, as you are now willing to lose up to the percentage limit.
- Ignoring longer time frames
The longer the trend is higher or lower, the stronger and more durable it will be. Many traders go into the forex market with a day trading mentality and repeatedly get sucked into 1-minute to 15-minute chart signals. However, trends on the hourly, daily, and weekly time frames have much more control, causing most contrarian short-term signals to fail. For example, a decline on a 15-minute chart means nothing without checking the higher time frames.
- Trading with the wrong risk-reward ratio
The act of trading releases adrenaline, triggering excessive attention. This creates addictive feelings that are unaffected by gains or losses. This bad chemistry most likely will cause the new trader to take positions with poor profit potential and excessive risk, just for the thrill of “being in the market”. Rigorous discipline and an unbiased risk-reward analysis are required before starting a trade to overcome this common shortcoming. In most cases, stick to opportunities that generate profits of at least three times the expected losses if the trades turn against you.
- Not using Stop Loss
Placing a stop loss at the right price is the thin line difference between thriving, surviving, and losing everything. The Crypto market can become extremely volatile at times, creating almost violent price swings with little or no warning. Add excessive leverage and the new trader faces a potentially catastrophic loss within minutes. Even walking down and making a sandwich can cause career-ending losses, so it’s vital to stop after entering a new position.
- Trading difficult and obscure patterns
Use only the most promising opportunities for profit and walk away from everything else. Do your homework no matter how long it takes, and look for near-perfect technical patterns or basic setups. Be careful about fitting the shape when researching. The untrained eye can easily block out aspects of a chart that don’t fit a predetermined bullish or bearish bias. When in doubt, rely on cross-validation, which looks for confirmation through three, four, or even five different types of indicators or analytical methods before closing a trade.
- Losing control over your emotions
A profitable business career requires the same level of mental discipline as building a successful marriage or raising children. If you lose control of your emotions in other aspects of your life, expect the same to happen when the business goes against you.
The bottom line
New traders come into the crypto game hoping to “score big” and take home a quick fortune. Then reality bites, generating unexpected losses that erode confidence and generate waves of poor decision-making. Survivors will eventually learn that profitable trading is a lifelong endeavor in which the practitioner controls his emotions and lets numbers and signals drive buying and selling decisions, rather than greed or fear.
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Disclaimer: Crypto products are unregulated as of this date in India. They could be highly volatile. At Unocoin, we understand that there is a need to protect consumer interests as this form of trading and investment has risks that consumers may not be aware of. To ensure that consumers who deal in crypto products are not misled, they are advised to DYOR (Do Your Own Research).