Cryptocurrency is one of the most popular markets nowadays. With high volatility, a wide range of assets and 24/7 availability, it’s a great place for all types of market participants, including speculators, traders, and investors.

In order to become a successful cryptocurrency trader, you will need to learn and practice hard. One of the fastest ways to gain real experience and to improve your trading skills is to learn directly from others’ mistakes. In this article, we will show you 5 common mistakes that beginner cryptocurrency traders often make, as well as methods to avoid them.

 

5 typical mistakes of cryptocurrency traders

 

1. Using Too Many Technical Indicators

It is undeniable that technical indicators are useful tools for cryptocurrency traders. However, adding too many indicators on a chart not only doesn’t help you trade better, but also confuses your analysis.

As you already know, the technical indicators are separated into two categories: lagging and leading. The lagging indicators can help you determine assets’ trends, while the leading indicators can tell you when reversals may occur. Using just one indicator of each type, you have a complete trading system.

However, many traders think that the more indicators they use, the better they trade. This concept is wrongbecause most indicators in the same type provide the same signals in certain cases. Therefore, they don’t help you trade better at all but make your charts look cramped instead.

The key to better trading is not about how many indicators you use, but how adept you use your indicators. You can simply use a Moving Average and a Relative Strength Index (RSI) to analyze the market, as long as you know how to use these indicators well. It’s about quality, not quantity.

2. Trading Too Often

Cryptocurrency is a highly volatile market. This means, there are plenty of short-term trading opportunities available.

Sounds very potential, right? Be careful! You can be trapped!

As there are plenty of opportunities available, many cryptocurrency traders will try to trade as much as possible. They think that more trades equal more profits.

This is a serious misconception!

In fact, trading too often not only doesn’t help you earn more profits, but also makes you:

● Exhausted

● Confused

● Angry

● Oversensitive

● Overthink

● Overreact

All of these things are harmful to your long-term trading result.

As a digital currency trader, you should not trade too often. Consider using mid-term and long-term strategies with strict trading rules, and prioritize rest. A healthy mind can help you make more accurate decisions, meaning better trading results.

3. Trading Based on Emotions

There are many ways to lose money in the cryptocurrency market; however, the fastest way is trading based on emotions.

Have you ever heard of two terms FOMO and FUD? These terms are used to describe emotional traders.

● FOMO (Fear Of Missing Out) represents traders “afraid of missing opportunities”. For example, when Bitcoin price rose to $20,000, many traders who hadn’t owned Bitcoin or had sold Bitcoin before feared that it would increase further, so they rushed to open bullish orders. They did not know that they bought right at its peak!

● FUD (Fear, Uncertainty, and Doubt) refers to traders who lack knowledge and experience. They are often affected by rumors in the market.

FOMO or FUD traders can’t generate profits in the long term. They can make some profits in the short term, but those profits will soon be erased.

To avoid emotional trades, you will need to strictly follow a trading system with strict risk management rules. Find yourself a system and backtest it thoroughly, then test it on a demo account for at least 6 months. Set up your own trading rules and follow them with high discipline.

4. Constantly Buying When the Market Drops

If you ever traded stocks, you will see that they have many similarities with digital currencies. The uptrend often dominates, and an investor can implement a “buy and hold” strategy.

However, if you bought Bitcoin at its all-time high (ATH), you have become a stranded shark.

In 2017, when Bitcoin reached its ATH at $20,000, many traders predicted that the currency would rise to $50,000 or even $100,000 in the future. So, they constantly placed buy orders while Bitcoin was decreasing. Well, you know what happened then.

The cryptocurrency market has not been legalized yet, so basically, there are not many firm factors ensuring that digital currencies’ prices will increase in the future. In addition, there are more and more thefts occurring in the crypto world, threatening the safety and potential of these currencies. Therefore, do not constantly open buy orders when the market is decreasing if you don’t want to wipe out your fund.

5. Poor Risk Management

Risk management is an indispensable part of a successful cryptocurrency trader. But the sad truth is, a large number of cryptocurrency traders despise this. They arbitrarily risk 5%, 10%, or even 50% of their funds on each trade. Particularly, several traders even go all-or-nothing after a few unprofitable orders.

Remember, no matter how good your strategy is, if you don’t manage your capital well, you won’t be able to earn profits in the long run.

According to financial experts, you should not risk more than 2% of your capital on each order. In addition, during drawdown periods, you should consider lowering your trading volume to reduce losses. If your drawdown reaches 15% of your capital, you may need to stop trading to review your strategy’s efficiency.

The Bottom Line

So you’ve gone through 5 common mistakes of cryptocurrency traders. Let’s summarize them:

● Using Too Many Technical Indicators

● Trading Too Often

● Trading Based on Emotions

● Constantly Buying When the Market Drops

● Poor Risk Management

It is quite easy to avoid mistakes #1, #2, #4, and #5; however, in order to overcome emotions when trading, you will need to practice for a long time. We are all human beings, and we always have emotions. To say that you should avoid emotions while trading doesn’t mean you can do it right away, but you are still able to do it with consistent practice.

If you find it difficult to manage your trading psychology, contact Finmax’s specialists for advice.

These 5 mistakes are definitely not all mistakes that crypto traders often make; however, they are the most dangerous ones. If you can avoid them, you will have your chances of success increased significantly.

TRADE ON FINMAX

“General Risk Warning: Binary options and cryptocurrency trading carry a high level of risk and can result in the loss of all your funds.”

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