Top 5 mistakes to avoid as a beginner in cryptocurrency trading
Most trading beginners make the same mistakes when working with cryptocurrency, which can lead to loss of deposit. Let’s have a look at the most common mistakes to prevent such a situation.
1. Trade versus trend
A beginner in trading is often full of energy, he wants to trade days and nights. Inspired by success after one or two profitable orders, he starts thinking that he is smarter than everyone else. The desire to "break the system" prevails, and the trader begins to go "against the market", making an order against the trend. Sometimes traders simply do not see the general trend and do it, expecting no trouble. But it’s a mistake in both cases.
You have to build a corridor (trend), based on the chart of currency pair to avoid this. Not only a professional trader can do this. Do not consider minute or even half-hour charts. Take a look at a four-hour chart (where one candle equals 4 hours of time), it is the basis for creating trends. If you see that the line of the candle is clearly up or down, then build another one that supports the price (from below the candles) and the other from above, so that the lower and upper boundaries of the candles barely touch the lines. Now a corridor of two lines is formed. This is the trend. If it goes up, the trend is upward. If downwards, it is descending. In an uptrend, it makes sense setting a buy order, in a descending trend, sell orders. Do not do the opposite, you very soon realize it’s a wrong decision.
2. Ignoring the fundamental analysis
Do not think that a trend can never be "broken". Yes, it is influenced by many analytic factors, but not only. One can even say that news from around the world has a much greater impact on cryptocurrency rate. This is called fundamental analysis.
A competent trader always analyzes news from the most authoritative sources. Not only news from the cryptocurrency world, but also the world of politics and finance. China banned the ICO, and we see a strong move down. Bitcoin as a new means of payment in Japan, and we see a rise in the rate. These events are always unexpected, but they certainly have a very strong impact on the market. If something like this happens, and you have an order open, check if it does not contradict the movement that triggers the news.
3. No stop-loss order
Stop-loss is a lifesaver for the trader. It can save him from loosing the entire deposit. Imagine the trader checks the chart in the evening, he has an open order to buy BTC/USD, the trend goes up, and everything is fine. The trader goes to sleep. He wakes up in a good mood in the morning. Opens the trading terminal window, and sees a deafening number “0” in the deposit line. Turns out that while he was sleeping (and the cryptocurrency market operates 24/7), the exchange rate fell sharply, and his deposit was not enough to cope with the minus trade.
Stop-loss order helps to avoid such a situation. It is designed to limit an investor’s loss on a position in a security. It can be applied to any order. Stop-loss can be used for both a fixed cost and a floating mode, for example, at a level of 50 points below the current rate. Therefore, it is recommended to all traders to use stop-loss.
4. Lack of self-trust or excessive emotionality
Emotions or lack of self-trust often stand in the way of a beginner. If you want to be successful in trading, it is necessary to be confident in your actions. To do this, you need to analyze the market and imagine the possible options. Of course, it takes some time, but experienced traders advise first to use a demo account or simply imagine: "tonight I would place a purchase order, because...". And check tomorrow if the decision was right. When there are more correct solutions, you can try trading using real money.
Keep in mind that every order is an attempt to learn something new. Don’t think that you are an advanced trader, if you place an order at random, and suddenly get a profit. A very thoughtful analysis is a key. Do not place an order when in doubt.
5. Too much support for loss-making positions
If you did not place a stop-loss order, and see your order getting a minus sign, you should think about closing it. The loss itself is difficult, but the loss of the whole deposit looks much worse. If your order has not shown profit for a long time, you first need to look at the trend. If it has changed, then it’s time to close an order. This step will not bring profit, but you will not lose even more money either. If you are still in a trend, you can wait, but be sure to monitor the situation.
Avoiding these mistakes will not guarantee you a success. Sometimes the market is very unpredictable, and until you are not an advanced player, there is a risk of losing money. But sticking to simple rules will help to reduce this risk to a minimum.