Hey all!
Today, my post is going to be a little different. I'll be talking about the common mistakes traders make while trading/investing in the cryptocurrency space.
You’ve probably heard the phrase: ’90% of all the traders in the market lose money, only 10% win.’ Well, in fact, it is estimated that almost 95% of traders lose money and end up quitting.
Let’s accept the fact that everyone makes mistakes, even the top traders, so there's nothing to worry about.
It’s absolutely fine to make mistakes, but it’s important to learn from it and not repeat it or even better…
So, how do you understand the psychology behind trading?
Here are a few takeaways for you:
After entering this market, you probably saw many people talking about "top traders" on Twitter/Telegram sharing their calls/charts/analysis. While this is absolutely fine, a large number of them claim to be winning and nailing every trade!
You would have also seen many people claiming that if you use a large number of indicators/lines/curves on your chart, you'll have a higher probability of winning. That you should follow at least 20-30 different traders in the market, each of whom may be using different trading tools/indicators making you feel that you can nail the market by using all of them. You couldn’t be further from the truth. Believe me, the same thing happened with me when I was a newbie in trading and I ended up making many big blunders.
If you have entered with some capital, (let's say $500) and you end up losing $200 on your first trade itself, you must be doing something terribly wrong! That is a mistake a lot of people make while trading. It’s about money management.
This is one of the most important things in trading. Even if you are one of the best analysts in town, even if you know the market psychology, you can nail technical analysis, you will probably lose money if you don’t manage your risk properly. This is a big topic, so I will cover it in detail later on!
Suppose you end up losing money like the above case. You’ll have the urge to make up for the loss quickly, so you try to trade more and more, trying to catch every move and you end up losing even more money.***
Another important point: If you are a newbie in this space, (right now I see a lot of new people showing interest in cryptos), you probably would have been attracted to those pump and dump groups which guarantee you massive returns by showing 1000%-2000% and all sorts of astronomical gains.
Avoid those groups at all costs. Those running these groups have some advanced bots that can efficiently use trailing stop losses and can exit at huge profits. You, on the other hand, will be the one holding their bags while they sell. Never do this!!
- Following the news too much: I believe following news is necessary, but getting too involved in news affects the psychology and sentiments. I have seen many people counter trading CNBC's news, selling whenever they are bullish and buying whenever they are bearish. They have been successful as well, but it may not work in the future!
Also, CNBC and the likes are all institutions. They know when they can trap all the retail traders, once everyone starts to countertrade them. That's the theory that 90% of the traders are wrong about the market!
- A very silly thing: Investing in MLM schemes. Like me, you might also be getting private DMs from people who are asking you to invest with them, which will payout fixed amounts of profits every day. Nothing can really be guaranteed in the markets (especially in cryptocurrency markets), so anyone trying to tell you that is definitely trying to fool you (BITCONNNNECCCCCT) or those online cloud mining scams, , and you should avoid them at all costs. I’ll cover a long list of different types of scams in this market as well, so stay tuned!
As of now, if you are new to this market, never hand out your private keys/personal details like mail/phone number/password/2FA to anyone!
Here are the top three mistakes: a) Overtrading b) Revenge trading c) Patience
a) Overtrading:
Overtrading is when you trade too often, trying to catch every move. It impacts your decision-making skills and you end up making bigger mistakes. Many traders also confuse overtrading with scalping (taking advantage of small moves in the market). In reality, it’s not exactly like that. Overtrading is like trying to time the markets every possible move. You can even stare at the 4-hour charts for the whole day, trying to "predict" where it will go next, which may end up impacting your decisions.
b) Revenge trading:
This is when you feel you must make up your loss. You end up taking more (leverage?)/risk/doubling down on your already losing positions. Believe me, that's wrong. If you are already seeing that some coin/asset is in a downtrend, why will you not sell it? Even when you are in a loss? You can probably save yourself from losing even more! Something similar happened to me once: I bought ADA on Bittrex when it was trading around 200-240 sats. I bought a very big bag. I never sold. I got married to the bag, I didn't even sell when it reached 8000 satoshis back in 2018). Then after the crash, I panic sold the "bottom" around some 2000-3000 sats and again bought back around 4000 sats, only to sell it again at 2000 sats to exit the market finally.
So you see, this particular experience happened with me as I was too emotional about the markets, and I didn't feel that I should take a loss.
c) Patience:
If you feel the bottom is already in, you don't necessarily want to go all-in right? I personally know a lot of traders who thought $10k was the bottom for BTC, and they ended up buying BTC, and altcoins when BTC was trading around $10000, back in 2018. only to see that their money got 1/3rd, (or from a crypto point of view: they could have bought 3x more cryptos with the same money if they waited). Hindsight is 20/20 though.
Note: This is just the tip of the iceberg. Too much information would be an information overload for you guys! I will cover more on such topics while sharing the analysis on future articles 😀
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