You have probably heard many traders share their success stories and have probably seen your fair share of winning trade screenshots, but what of the others? Surely not everyone can be 100% successful all the time, so why don’t we see more about the mistakes traders make? They say it is good to learn from your mistakes, but better to learn from others. Let’s discuss some of the most common trading mistakes and what you can do to avoid them.
Too much money/leverage
The number one reason traders lose a lot of money in the market is because they allow too much to be taken from them. This usually happens to brand new beginners, most of which are misled from “get rich quick” videos on the internet. When a person tries something for the very first time it is not likely they will be successful in completing their task. Even with great training and preparation it is still not promised that you will be profitable in the markets.
Knowing how to lose is as essential as knowing how to win. Oftentimes when a trader takes a hefty loss (or two or three) they become discouraged from trading. This is where a lot of people may turn away from trading and decide it “is too difficult for them.” Learning a new skill takes time and practice. When you can analyze why you have taken a loss in a position you can use the lesson in a future set up. It becomes increasingly difficult to analyze your actions when there is a large negative price tag attached to it.
The easiest way to practice trading is with a paper trading demo account. Many people think, “I don’t want to trade with play money, I want to make real money” yet they have no experience making successful trades. Once you can consistently create profitable trades from the market’s opportunities – only then should you try to use real money. When you do start using real money, start out small so you can then practice emotional management.
I tell people not to make promises in this game but one thing I can promise you is that you will lose funds at times when trading. Your objective is to limit those losses and the very first step is to manage the funds you trade with properly. Once you can allocate “x” amount that you are comfortable losing, gradually increase that amount as your account grows. If it is not growing, do not increase that amount.
Using leverage is a risky call but can be extremely rewarding in some scenarios. It’s utterly important to understand which scenarios you can and can not be leveraging. Ultimately the decision will be yours as a trader, however it is suggested you do not use excessive leverage in most scenarios. Using leverage in any scenario should be considered very high risk as you are essentially trading with funds that are not yours.
If you can manage to stay in the markets long enough to run into your next mistake I congratulate you. Most traders are not willing to learn from their mistakes and continue on the journey. That being said we will get into another common mistake which is in regards to analyzing trading time frames.
Not knowing trade duration/time frame
Another common mistake I see traders make is within their time frame observations. People may plan an entry for a trade and say something like, “I’ll take profits at +1.5%” but do not have a time frame in mind for this exit. This may sound okay to a lot of people. While it’s not wrong, failing to project a timespan for your positions could put you at an unnecessary loss of funds.
When you are analyzing chart data you can forecast the timespan that a prediction could play out by taking note of the time frame being observed. Let’s take a look at a an example.
Without discussing any technical analysis factors and only considering timespan projection we will look at the above photo. If a trader wanted to wager on this position the time allowed for the trade would be three hours. This means that after three hours the trader would check this trade and look to close it if it hasn’t reached the take profit goal yet. If the trade is in profits it can be closed for profits. Any amount of profits is better than a loss.
Why might this be suggested? Well if you are aiming for a certain percentage profit goal then you must imagine a timeframe for the trade to exist. If the market starts going against your idea then it could be in your best interest to re-analyze a market scenario and cut a losing trade off before it depletes any more funds. If you stay in the above trade for more than the three hours you provided yourself, you allow for the market to change trend direction or momentum. Remove as many variables as possible by giving your trades designated timeframes.
Some traders have said, “I should have taken profits” when their once-winning trade turns loser. Even if they were using a stop loss, it may not have been necessary to get stopped out as they may have had an opportunity to exit with profits but time did not allow that opportunity to be present forever. If you can try to limit your trade with a time period you will be more likely to capture profits.
Have you ever heard the term FOMO investing? Essentially it’s when an investor/trader takes a position without doing any technical analysis. An example of this type of investment can be when Elon Musk tweets about Dogecoin and a trader makes a trade in a Dogecoin pair. In some circumstances those investments were extremely profitable for people, in other circumstances people lost a significant amount of funds. There wasn’t much technical support for what happened recently with the dogecoin pump and dump yet many traders blindly invested their funds into the asset without research.
Again it is not always disadvantageous to jump into a moving or trending asset, however you must observe the data first! If the data supports your idea and it is a good idea then by all means take the position. Just do not try to jump onto something that has already reached an extreme technical high.
The easiest way to avoid this of course is to simply avoid taking positions without analyzing the data. That might sound simple but again emotions can get the best of you. Chances are if you are trying to jump on a coin rally that you have already missed the best entries. Don’t be too quick to sadden however as a pump is sometimes followed by a dump. If you can observe a coin pair’s behavior after a pump you may find a nice opportunity for a short trade to be taken.
Too many coins/investments
Finally one of the biggest issues noted when speaking to others is that they are observing too many coin pairs at once. This is usually because they are trying to make a quick trade and looping back to the FOMO investing principles. I have seen the question “What is a good coin to trade” way too many times. It’s not a question that should even be asked. You must show confidence in your ability to trade a market or the market will eat you alive.
When charting a coin pair it should be constantly updated and properly observed. Drawing a few lines shouldn’t give you the confidence to put your money into a position. You should draw confidence from understanding a coin pair’s behavior and familiarizing yourself with key price levels.
In the ever booming world of cryptocurrency there are constant news updates from both valid and invalid sources that get passed around to speculators. Some of this news can be influential to a coin’s price action such as a hard fork or a project developer leaving the team. Having your funds spread out into too many coins could cause you to react too late to this news.
Instead of scouring for an opportunity try to select a few trading pairs to observe and learn them well. When you familiarize yourself with one or two coins it becomes easier to foreshadow patterns as you have seen them before around key price levels. It is not always perfectly predicted but by reducing the amount of data that must be consumed you can be more precise with the data that is consumed.
There are many, many more mistakes that traders can make. We have discussed some of these mistakes and principles within our trading course content. If you are having one of the above issues hopefully now you can recognize and correct the behavior. If you are experiencing mistakes not listed in this article, record those mistakes so that you can learn from them and use them to plan future trades.
By viewing any material or using the information within this publication you understand that this is general education material and you can not hold any person or entity responsible for loss or damages resulting from the content or general advice provided here. Trading cryptocurrency has potential rewards, but also potential risks. You must be aware of the risks and be willing to accept them in order to invest in the markets. Only trade with funds you can afford to lose. This publication is neither a solicitation nor an offer to buy/sell cryptocurrency or other financial assets. No representation is being made that any account will or is likely to achieve profits or losses similar to those discussed in any material on this website. The past performance of any trading system or methodology is not necessarily indicative of future results.
Written by Edward Gonzales © Crypto University 2021