As we all know, cryptocurrency trading can be highly profitable in very short time – compared to other assets. However, trading is a skill which has to be learned – somewhat like playing poker profitably.
Beginners with no crypto trading experience tend to make the typical beginners mistakes, which soon lead to more and more losses.
Simply knowing about those mistakes and not doing them ever again are the first step to becoming a successful crypto trader who‘s able to build wealth by trading – Don‘t let those errors hold you back from making money!
#10 - Not having a Plan for the Trade
Having a plan includes the ability to answer ALL of these questions in detail:
- What different technical analysis signals tell you that there is a good entry?
- Why do you enter at that specific price and not higher or lower?
- How long do you expect your trade to last?
- Where do you put your stop loss?
- What‘s your risk: reward ratio?
Professional traders know all these details in advance, as they are crucial for successful trading. Beginners often act without clear plans and wonder why they lose too much money overall instead of building wealth.
#9 - Feeling that Price will go up and not just use Technical Analysis
Beginners often think that they see where price will go on a chart because the few other experiences they had with charts looked alike – so „this one will for sure do the same“.
That‘s of course simply the way how human brains function. Past experiences lead to subconscious biases about future circumstances.
That‘s how humans generally learn things and try to understand the world. If you are a begginer trader and have just seen a hand full of price charts in your life, which might all even have looked like more or less – of course, you‘ll think the next chart will again unfold the same structure.
Or the beginner sees a recent pump in a chart and expects the price to pump soon again, because for his eye this would just fit so much into the picture of the chart. These biases are fatal as they lead to imprudent and unprofessional behavior.
Beginners have to learn that they can never be sure about price movements, especially guessing price out of feelings or in comparison with other charts is a strategy for losing money asap.
Only technical analysis can deliver signals for potential trades. TA is for estimating likelihoods for price movements. If price movement in a certain direction looks way more likely than in the other direction, we have the circumstances for a trade entry.
Still, there won‘t be a 100% guarantee that the chart will unfold as expected – that‘s again why traders include the stop loss in their trading setup.
#8 - Listening To The Crowd‘s Trade Alerts
Be very careful with using Twitter or other social media for advice and trade alerts. When everybody shouts that a certain coin pumps soon, it likely won‘t happen like that.
Example – all the tweets about Dogecoin going Moon in end of May / June 17. Let‘s make it short: Doge didn‘t pump again, the chart had already had it‘s top before.
People who recommend coins and talk about pumps coming soon mostly just want to support their own trades. They‘ve just bought certain coins themselves and are trying to activate the crowd for the pump they want to see.
That can even be a lot of people at the same time, so you might think that if everybody talks about a coin pumping soon, it will. Just don‘t be surprised if it doesn‘t. If your TA tells you that there is a possible trade, then you should enter it, but not because of the crowd shouting for it.
#7 - Trading in a bad mood
Trading is a rational business which shouldn‘t be influenced by feelings. Being in a bad mood means you shouldn‘t trade at that moment or on that day.
As you are human and not a robot, a bad mood can influence all you do in a negative way. We‘re more likely to make mistakes or wrong decisions when we feel bad, due to not being concentrated and seeing things with a negative bias.
So being emotionally down, stressed, sick, not concentrated, feeling impatient etc. are circumstances where you should better do something good for yourself – take a nice bath, relax, get a massage, call a friend, do sport or watch your favorite series. Better don‘t do crypto trading.
#6 - Not Using A Stop Loss In Every Trade
What new traders often don‘t know, is that a stop loss is not just an optional order type which experienced traders use from time to time – it‘s obligatory for each trade from a professional point of view.
Professional traders use a stop loss in every trade, as a clear decision about the loss they are willing to take is as important as their plan where to take profit.
#5 - No Concrete Idea About Risk: Reward Ratio In Each Trade
When a professional trader enters a trade, he knows exactly how much potential loss he might have to accept compared to the potential profit he might be able to take. The loss should be relatively small to the potential profit.
The loss can obviously only be guaranteed to stay small by using a stop loss order. Not knowing these areas of stop loss and potential profit areas in advance is the typical behavior of beginners who don‘t have a plan for their trades, which will soon lead to constantly losing money.
#4 - Trading With Too Big Amounts In Single Trades
Beginners with little to no trading experience and knowledge tend to put way too much of their whole trading capital in one single trade. As each trade always includes a risk, it‘s simply a numbers game how much of your whole capital you should risk each time.
Too much capital in single trades can lead to a massive reduction of the whole trading capital in short time. But that‘s what often happens to beginners. Professional traders don‘t do that. Traders shouldn‘t take more than a few percentages of their whole trading capital for a single trade. Max. 5%.
So if you take 5% of your whole trading capital and the risk of this single trade would be 10% (meaning you put your stop loss at 10% below your entry), then it would be a 0,5% loss for your whole trading capital. (10% of 5%)
On the other hand, if the trade becomes a success and you could take let‘s say 150% or even way more profit, you‘d have gained at least 7.5% on top of your whole trading capital at once, which is massive.
Tell that to a Forex or stock trader. Just imagine you could catch a couple of such pumps and would be able to take profits from 100% to maybe even 500%, your whole trading capital would be doubled fast, even while sometimes being stopped out with the small losses as described.
There might be traders who got rich with a few trades or with maybe even one big trade where they had put all their capital in this one single pump of 3000% or so, which then luckily occurred. But that‘s like winning in the lottery and the concept behind it is gambling, without risk management.
You see the risk to do that: If such a pump doesn‘t happen and the price even falls, the trader has to take a loss of a few percent of his whole trading capital when having put a stop loss wisely.
Another problem is, when you put all your money in one single trade, you are completely dependent on this certain coin to pump.
If it doesn‘t pump very soon, your capital keeps stuck in this trade while you wait for the pump, which maybe happens next year or never like expected.. or you just get stopped out with a relatively high loss, compared to losses when using less capital for single trades.
Hopefully, you get the idea of risk management by not using too much capital at once.
#3 - Become Cocky After A Few Successful Trades
A big common mistake: Enhancing the amounts for single trades (percentage of the whole trading capital) after a few gains in a row, because of thinking „wow, it‘s easy“ and „I‘ve already got how it works..!“
We‘ve seen traders who did it correctly at the beginning: In their first trades, they used only small amounts of their trading capital. Let‘s say one had 8 BTC and he would only use 0.1 BTC for a trade, which is fine.
Fortunately, a couple of trades immediately got very profitable and the trader felt happy and had gained confidence.
Out of this confidence, he thought that it seems pretty easy to make money in crypto – so he decided to take bigger amounts. As he had been able to at least double his 0.1 BTC each time – he could also double a whole Bitcoin or more – right??
With this conclusion in mind, he started to take entire Bitcoins for trades, which meant a dramatic increase in the percentage of his whole trading capital risked in single trades.
Now guess what happened? After a short time the trader reduced his entire trading capital to less than 50%, so 8 BTC soon weren't more than 4 BTC, and continuing to fall as his capital was stuck in altcoins which just went further down continuously.
So the trader sees his capital dwindle each day, hoping for future pumps to at least get his capital back. Breaking basic rules because of becoming cocky after a few successful trades is a very bad idea!
#2 - Chasing The Price – Wrong Entry
Often new traders have just recently heard about cryptocurrency trading from a friend who has had great profits and who‘s talking about those exciting cryptocurrencies.
Those newbies tend to jump randomly into trades when they see a rising price on a chart. Like „oh, this coin has pumped 38% overnight - it will for sure go further – the chart looks promising! My friend also made 200% profit with it..„ It even often happens that they buy around the aspex before price dumps again with no further pump soon.
Unfortunately, those traders don‘t even get out early again when the price falls. Afterwards, such new traders see price descend over days or even weeks till they can‘t stand it anymore and sell low.
If this scenario sounds familiar to you – make sure you don‘t randomly jump into pumps anymore. This unprofessional behavior is also called „FOMO„ in trader circles – fear of missing out – which is like a mean disease among beginners.
#1 Confusing Investing with Trading
Traders with no real idea just buy, without a concrete trading plan behind the purchase, and hold, expecting the price to go up soon/further, to any good looking high-profit target. That happens to people who are completely new to trading and who haven‘t invested the time yet to learn how profitable trading works.
They just think that trading is something where you buy an asset and sell it higher. Which is true, of course – but that‘s pretty much all they know. Just buying altcoins and waiting for future pumps because the trading beginner thinks the coins always have to pump again soon.. that‘s not trading. It‘s investing, and even not smart in that field.
Consciously investing in an altcoin, hoping for a higher future price, means that the investor should have an idea about the coin – the concept and the fundamentals.
Altcoins can easily lose their value at all and disappear if the concept turns out to be useless for whatever reasons. Trading means actively buying and selling to take tangible profits within certain timeframes and not just hold.
Now you know the crucial mistakes which hold new traders back from being successful. Hold on to those basic rules and have fun with trading. We wish you massive gains!
Action to take
Now that you know what you should avoid you may start doing cryptocurrency trading using a broker. We use and recommend you eToro for trading cryptocurrencies like BTC, ETH, LTC or Dash.
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