Top Common Mistakes of a Trader in Cryptocurrency

Day trading is defined as the act of buying or selling a stock, security, or in our case, a cryptocurrency within a single day with the intention of generating a profit from the trades made. Day trading has been very popular in the traditional stock market and foreign exchange markets, and over the last few years, it has become popular in the cryptocurrency ecosystem. Due to the fact thatp the cryptocurrency market does not cease to close, it provides traders a greater window of opportunity to make a profit.
However, day trading is one of the more difficult practices to engage in, especially in the global cryptocurrency markets. The high market volatility, unregulated markets and seemingly non-stop breaking news make day trading look similar to gambling within this particular ecosystem. Beginners and experienced day traders alike can lose their funds at the drop of a dime without the proper trading protocols in place. Today, we are going to touch on some of the most common mistakes made by day traders in the cryptocurrency ecosystem and how to overcome these mistakes. While this post is intended to be helpful, it is not a step-by-step guide on how to trade within the ecosystem. Please use your best judgement at all times when day trading.

Practices to Avoid

No trading strategy in place. Having a well thought-out trading strategy is crucial for a success in day trading of digital assets. Without this guideline in place, personal losses have a higher probability of building up with the end result of a smaller trading fund. Below are few tips to consider when setting up a personal strategy:
  • How much will you be willing to trade?
  • Entry and exit points.
  • Risk Management and Stop loss.
The percentage of your portfolio you are willing to set aside strictly for trading is vital to your trading strategy. Without a set limit, very often traders blow it all through their total investment without recognizing it. A set limit will allow trader to re-evaluate recent events and will act as a deterrent for trades in the immediate future.
In the ideal world, day trading would be a simple task: buy low and sell high. Unfortunately, the volatility associated with day trading in the cryptocurrency markets makes this strategy a bit difficult. Having pre-determined entry and exit points will allow the trader to effortlessly know when to buy or sell, no matter how simple or complicated their trigger to enter or exit the market is. Some traders utilize moving averages of the high and low of a coin over the course of an hour while others utilize a strategy where the coin they are trading must meet specific conditions on the charts. Entry and exit points require dedicated research and will vary by the trader.
Risk management is another important factor to consider when you begin trading in the markets. If you are an individual that is looking for a low risk or low reward strategy, a more conservative approach is suggested. With the conservative approach, your stop loss, or trigger to exit the market once the coin you are trading hits a specific low, has a higher probability of hitting. Additionally, your profit making will be at a lower price point. If you are an individual that is willing to take more risks within the market, a more aggressive approach may be right for you. As opposed to the conservative approach, your stop loss will be a little lower while your profit making point will be at a much higher coin price.

Emotional Trading. Learning to exercise discipline and containing emotions when trading separates the decent traders from successful traders. Whether it is FOMO (fear of missing out) or FUD (fear, uncertainty and doubt), emotionally based trading can easily lead to a potential loss. Experienced traders often suggest trying to imitate a robot or computer when trading to strictly adhere to the pre-strategized trading plan.
Not accepting losses and moving forward. When losses take place in trading, it’s a human nature to continue trading to recoup any losses. Just as an individual who loses money at a casino attempts to “double down”, or double your initial bet to make up the losses incurred on the initial bet, the same applies to some individuals when day trading. Recalling the first tip we provided in this article, it is advised to stick to your trading approach. If you reach you loss limit for the day, it is best to cease trading and re-evaluate what went wrong and how you can improve in your next trading session.

Day Trader’s Recap

As we closeout this article, we’ll provide a quick recap of three major practices to avoid when day trading. Having no trading strategy in place, emotional trading, and not moving forward after your losses will most likely result in negative results on the cryptocurrency market. Additionally, human sentiment such as greed and fear do not play out well in the markets. It is important to remember trading cryptocurrency is a zero sum game. One trader will come out ahead while another will take a loss. Whichever strategy you decide on, make sure your gains continue to outweigh your losses.