Not so long ago we at TradeSanta crafted a piece on common rules for beginners trading crypto. But we’ve noticed a pattern of oversights and errors that newbies keep making.
How important is it to understand the product? Do you act on indicators you don’t understand? Should you really attempt to make a profit in every trade? In this article, we’ll touch upon these and other related crypto trading tips.
Do you investigate the intrinsic nature of the project?
Why is it important to understand the essential characteristics of the coin before investing in it? At the end of the day, we’re all interested in the investment potential of the product. And that depends on the impact it can have on a community.
What makes Bitcoin such a valuable asset? The breakthrough blockchain innovation which gives the coin a first-mover advantage in the market. The limited supply of 21 million BTC also adds value to the project. Because 18 million coins have been already mined, the next three million will be progressively slower to mine and increase the value of the Bitcoin.
Now, keeping that in mind, you can take a look at other cryptocurrency projects.
Consider EOS which has got 21 voting nodes on the network. That, compared to Bitcoin, makes the network centralized. Or start learning about TRON that is now worth one billion in market cap. Why such a huge number? You will start questioning the project’s singularity if you know that it was initially a fork of Ethereum.
So, how much of a long-term impact has the project you’re about to invest in really got? Maybe it has more short-term potential, which, by the way, you can also use in your trading. The point is that you should be able to draw the line between projects based on their technical differences.
Do you act on indicators you don’t understand?
Here is another common problem for novice crypto traders. They don’t want to learn about indicators. Indeed, it’s much easier to listen to a Telegram expert or even pay for trading signals than learn all about technical analysis.
Say you don’t know what the dots above the candles on this Parabolic SAR indicator signal. What does your gut tell you? There is a little green candle on the chart. Probably, you should buy.
If the dots on the Parabolic SAR indicator are located above the candles, it’s a bear trend, and the price will decrease.
Do you try to make a profit in every trade?
This mistake is very common for beginner traders. They have heard stories about people who got rich overnight in 2017 and hope for the same outcome in 2019.
Yes, in late 2017, prices for crypto were constantly growing and that gave everyone a chance to win consistently. In other words, crypto is volatile and it might grow fast. It is possible to make one trade and get rich. But the question is, what is the probability of this scenario in 2019?
Over the last two years, we haven’t seen a repeat of the 2017’s situation. Take a look at this all- time Bitcoin chart.
We’ll hardly witness something like the 2017 spike any time soon. And that’s why we probably shouldn’t chase fast wins and instead try to follow long and short strategies that have paid off in the current situation.
In turn, if you follow the strategies mentioned, it leads you to a concept of risk/reward ratio. You don’t have to win all the time with the ratio put in place. In fact, if it equals to 2.5, you’re allowed to lose 70% of the time. If it is 3.5, you can win only 20% of the time and so on.
We have covered this in detail in the article called The Art of Cutting Losses in Crypto, feel free to jump in.
Plus, there is one more curve our brain throws us when we lose – we stick to the position and don’t exit, hoping to close it in the positive. Again, this is a bad time to try and make an instant profit. The quicker you exit, the better, and you should accept minimum losses.
As you can see, this approach is more conservative, involves technical indicators, longer periods of time, risk instruments and the right mindset. The latter is probably the most important component, especially for novice crypto traders.
Indeed, it doesn’t make sense to expect massive gains right away with no effort.
To wrap it up, there are multiple ways to go wrong when trading crypto. In addition to such tips as keeping your emotions under control, diversifying your portfolio and taking care of security, don’t forget about less obvious but important lessons.
Research technical analysis of cryptocurrencies, learn all about trading indicators and be patient while waiting for several trades to net profit.