1. Starting with Real Money Before Paper Trading
Trading is a skill like any other that takes countless hours of practice and patience to master.
It has some ground rules and one of them is using paper trading before you put in the real money. This part is boring for many but it is the most quintessential aspect of trading crypto. Many trading beginners who donât mind losing money (gambler mindset) end up making real money trade even before mastering skills.
What you need to keep in mind is that the crypto market is not going anywhere. Even if you prepare yourself for two months (or 100 trade) with paper trading, you will not lose anything. You can prepare yourself better for the big game with crypto paper trading before putting in real money.
2. Not Using Stop Loss (Risk Management)
Stop losses are the holy grail of risk management. Stop loss helps you to minimize the losses when your anticipated trade goes south. It does not matter how confident you are about a trade going right, not using a stop loss is the biggest egoistic mistake you could ever make.
Almost all the best crypto exchanges offer this feature to set a stop loss of which some offer a trailing stop loss feature. I will cover stop loss and trailing stop loss in the days to come. If you have never used stop loss before or skipped them in your trades, you must start adding it. Using stop-loss with every trade you make helps you avoid the #1 mistake crypto traders make.
If you follow this single strategy, you might treat me to a pizza one day.
Anyhoo, moving on to the next oneâŠ
3. Paying High Brokerage Fees
Brokerage fees (high trading fees) can eat a significant portion of your trading profits. The key here is to use a broker (exchange) that offers low fees trading and has high volume and liquidity.
This way, you will end up making more money from trading.
Here are a few exchanges that offer the lowest brokerage fees:
Binance0.1% fees
CEX0.25%
4. Not Seeing Profit/loss as a Percentage
This is another classic mistake beginner traders make.
They often see their profit and loss as an absolute gain rather than seeing it as % gain or loss. Make a habit of seeing every trade of yours as a percentage improvement to have a clear picture of your profit and losses.
5. Not Doing Fundamental Analysis
A lot of beginners start by picking a popular cryptocurrency and start trading in them. There are chances that you will end up making good money for a prolonged time. However, when one fine day the coin dumps like there is no tomorrow, a single big loss would turn your portfolio red for a long period.
The way to avoid this newbie crypto trading mistake is by carrying out a fundamental analysis of the coin that you wish to trade.
Learn about:
What does this coin do?
Future outlook of the Cryptocurrency
The management team
Token economy
Based on these parameters, create a list of tokens that you would like to trade. Always remember, trading is unique for everyone for which you must build your system.
6. Trading Based on Pump/Dump Calls
There are Telegram/Discord groups that provide signals for buying/selling crypto. But do they work?
Hell no!
Especially as a beginner, you are better off avoiding such pump and dump schemes.
Such groups are not practical. When thousands of users are acting on the same trading call, the chances of those âSignalsâ working is bleak to none.
Moreover, the smart money has already moved in or out and now the beginner trader money is at stake.
It may work when the group is small and the owner is a pro-trader with high ethics. Such groups are paid and are usually very small in size (less than 20). Either way, you need to have the basic trading skills to take advantage of such signals.
Like other indicators of technical analysis, use these calls as only an indicator and not an actual trade. The trade situation may change wherein you would end up losing more than gaining.
7. Not Maintaining a Trading Journal
This is perhaps the biggest mistake many beginner crypto traders commit. Writing down why you are taking a trade and analyzing them at a later stage helps you answer the following:
Why specific trades are giving excellent results?
Why you are losing some trades?
Maintaining a trading journal will help you to improve your trading strategy with time.
You can always use excel or a paper journal. It is something that has proven to graduate a beginner to the next level of mastering crypto trading.
8. No Trading Plan
âFailing to plan is planning to failâ
You must have a plan before getting into any trade. It means that you need to know your entry and exit plan, principal investment amount, and the maximum loss you are willing to take.
Beginner traders usually donât have a trading plan and they are ok staying in a loss-making trade for a long time. Having a trading plan before execution will save you from making novice trader mistakes.
9. Revenge Trade
In trading, losses are inevitable.
Not many users have built the muscle to accept losses and they end up getting into the revenge trade. Such trading's are based on fear and frustration and are highly toxic for your trading journey. Often, such traders attempt to take riskier trade to cut down the losses. It is known as revenge trading.
You must be mindful after losing any trade. Know that nobody ever won 100% of trade. With a proper risk-reward ratio, even winning 40% of the time can keep your crypto portfolio positive.
10. Not Calculating Risk Reward
Me: Why are you getting into a trade?
You: To make a profit. Duh!
But how much profit do you want to make? How much loss you are willing to take?
In nutshell, this is the risk-reward ratio.
For every USD 50 you risk, you should aim to gain a minimum of USD 100 (reward).
You should have the following:
50:100 = 1:2 (Risk reward ratio)
Advanced traders usually recommend a 1:3 or 1:5 risk-reward ratio.
Either way, having a clearly defined risk-reward ratio helps you to avoid getting into risky trades. Even if you are losing multiple trades in a row, your overall portfolio will not be affected in the long run.
11. Using Margin Trading Too Soon
Margin trading is borrowing money (that you donât own) from exchange to get into the trade. The benefit is that you will end up making a big profit (with the same money) if you play your cards right. However, you can also face big losses if your trade goes south.
Unless you have perfected your spot trading or paper trading, do not get into margin trading.
12. Trading Multiple Pairs
Trading multiple pairs initially will only leave you confused, hampering your skill development process. My mentor taught me to stick with one pair for the initial 100 trades. Even when I started winning after my 40th trade, he made me stick to the course until my 100th.
I could only see the wisdom in his teaching with time. Staying with a single pair for the initial 100 trades helped me improve my skills about the rest of the stuff. Trading is a marathon, not a sprint. You are better off honing your skills rather than trading like there is no tomorrow.
13. Not Following Your Style: Avoid Herd Mentality
Everyone has a unique style of trading and so do you. It may baffle you in the beginning but you will surely discover it with time.
For a beginner, it is common to have a herd mentality and belief that everyone trades the same way. However, it is not true. You should start creating your style with maybe hit and trial method or by taking expert advice.
See the beauty in your unique trading style.
Final Thoughts
âTo Err.. is humanâ
Be ready to make and acknowledge some of these beginnerâs trading mistakes. You should focus on making fewer mistakes with each trade. It is how you can perfect the art of trading.
As you move ahead in the journey of being a crypto trader, you will realize that some of these mistakes are actually timeless wisdom. Some of the above-mentioned tips can be improvised based on your current situation. Your goal should be to minimize losses, focus on wins, and build your unique style.
As I learn more, I will update this guide with more tips and ideas. You can follow me to revisit it in the future.
If you like these tips of âCommon Mistakes of Crypto Tradingâ, consider sharing them with your friends who have recently started crypto trading or plan to do so.
