Cryptotrading Mistakes to Avoid: A 7-Point Guide
In the business of crypto trading, hundreds and thousands of transactions have already been made… adding in a couple of mistakes here and there. Consequently, learning from these mishaps will give you awareness and improve your market and trading skills in the future.
The following are some crypotrading mistakes that you should be careful about committing:
1. Improper command placements
Since the last executed transaction between buyers and sellers determine the value of a coin, the commands on supply and demand are then arranged in a table or, commonly known as, the order book. When dealing with crypto trading, it is better to set the sell level to take in profits and also to set up a stop loss to minimize profits.
However, there are no clear instructions on where these commands should be placed, and that’s where most people get in trouble. Identifying where to place these commands actually requires referring to the order book for optimal and support levels where the commands can be placed.
The resistance levels or the points where you want to take profit can be identified in the order book, and this usually means that a giant supply is present around these spots. The trick here is to place the sell commands exactly one step ahead at a slightly lower price. This way, the command will already be placed and sold to profit even if the demands will start to consume the supply wall.
In the order book, points of support can be identified as well when pinpointing stop loss levels to minimize losses. When the spots are supportive, massive demand or a wall of buyers can be found around those spots and the stop loss command is better placed there, only just a little lower than the high demand zone. These wall of buyers then serves as protection for the command and the command can only be touched if the sellers lower the price or if the wall of buyers break.
2. Not analyzing the value of coins simultaneously
Since major altcoins have the most number of coins traded against the USD, it’s important to compare them to their Bitcoin and dollar value as well. Graphs and charts are the best references for this type of analysis. Individually analyzing Bitcoin values without comparing them to other coins will result to missing the Ethereum accumulation period.
3. Involving emotions in trading
A staple rule in trading is that emotions should be set apart, especially for those who trade for the short term. Emotions involving the fear of loss may influence you to hold off on investing in any cryptocurrency due to previous experiences. However, you should not regret missed profits or lost trades, rather, you must always think about your future as a crypto trader and keep in mind that there will always be risks involved. Instead of dwelling on your losses, step up and create a better action plan with realistic goals.
What you can do, though, is to close out half your position after placing target sell commands, given of course that the coin has reached its first goal. Then, you may increase the stop loss to the initial entry level in order to not have losses. Lastly, close out one more quarter of the position once you reach the second target level, which is where you’ll likely stay. As soon as you get used to playing your profits, crypto trade becomes a lot easier.
4. Searching for crashed coins
Sometimes, it’s better not to invest on crashed coins, in accordance to their value against the Bitcoin, since their value may not always return to their peak levels. It’s tough to assume that there is an opportunity in a coin that’s lower than their peak price, since you might be relying on false hopes. Remember, there are coins that were removed from continuous trading, so don’t always get your hopes up.
5. Not keeping track of the trade
When entering the world of crypto trading, you must keep in mind that you do not only have to invest money in it, but also time. If you want to be involved in this type of business, you must follow it closely from time to time. As a week in the crypto market is equivalent to three months in the traditional stock exchange in terms of many factors, it is better to invest your time and effort slowly to observe its performance before you decide to invest huge amounts.
6. Looking at the coin’s price rather than the market cap
Don’t immediately fall for a coin that has a low selling price; first look into its market cap performance, and then decide if it’s worth it. The market cap performance of Altcoins is calculated by multiplying the number of existing coins in circulation by the price of the coin. Ripple’s low price may have a selling effect on the buyers, so you should be careful. Whether one Ripple is equals one dollar and there are a billion Ripples out or if one Ripple equals a thousand dollars and there are a million Ripple units, there really isn’t a difference. The more substantial figure to focus on, therefore, is the market cap and not necessarily the price for one coin.
7. Investing only in Bitcoin
As cryptocurrency is really unpredictable, its value may go up and down in a matter of days. When Bitcoin loses value against the US dollar, Altcoin also goes through the same process, and even holding other amounts of Altcoins like Ethereum and Litecoin is not enough to avoid losing a big chunk of its US dollar value. It’s important to also put money on other investment opportunities like stock markets, real estate, bonds, and the like in order to not contain the risks in one spot.
There will always be mistakes committed in cryptotrading, but it really depends on how a trader learns from them in order to improve their skills in understanding and dealing with the crypto market.
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