Trading is inherently risky, and the most important factor in trade is the grit of the trader. If failures, even repeated and prolonged ones, scare away and drive one into tears and black despair, then the crypto market should be avoided. In fact, the happenstances that scare away most traders on the market are common mistakes that can be avoided.
How It All Starts
Humans are still reliant on their instincts in everyday life and trading is no different, since it is a job. The emotional factor is the main one that drives traders into despair and forces them to leave the market. The fear of failure resides on a deep, psychological level, one that is tightly linked to the financial constituent of the matter of trading. Though trading with leverage is the norm, and up to 125x leverage is offered by the leading exchanges, some traders fear losses. It is understandable that the fear of losing money can be a deterrent, but when the losses actually do happen, the nerves of some give in. When the margin account starts burrowing into the bank account, traders panic. Depending on the losses sustained, some simply leave the market for good to avoid a repeat of history.
Uncertainty in the future, also known as volatility in financial language, is the norm on the crypto market. It is more of an advantage than a con, since there would be no reason to trade without volatility. Still, some novice traders and would be traders look in fear at the charts and their jagged, toothy lines. They fear that they will end up on the bottom line, thus losing their earnings and savings. Instead of embracing the uncertainty factor as a boon, many run in panic, unwilling to test their mettle on the market.
Failure and black streaks of luck are the third main factor driving away novice and even experienced traders. The series of suicides that swept through New York during the 2008 financial crisis are mute testimony to the power of conviction. When bad luck strikes, it harms the wallet of the trader, true. But that is not the end of the world. Most simply refuse to understand that once we take away the emotional factor from a situation, we are left with a situation that can be reasonably dealt with. However, some traders give into emotions and tuck tail at the sight of bad luck. So let’s kickstart the upcoming decade with a set of common mistakes that lead to the peril of a lot of trader’s wallets in the last couple of years.
The Five Main Trading Mistakes
Overconfidence is the worst enemy of any trader. With target fixation, the world around and the graphs signaling downtrends start to blur and traders miss important signals. A streak of winning trades inspires traders to keep pushing even when the bearish market starts breathing down their necks. Admitting fault is the same as admitting defeat for some traders and they would prefer supporting losses than taking one step back. On a psychological level, this is simply called self-confidence or arrogance in the most extreme cases.
Overtrading, or insufficient capitalization is the bane of many traders. They overleverage their positions with insufficient capital backing them up and keep on trading. For example, the idea of Forex trading is convincing the trader to work with leverage so brokers can make money on traders losing money. Well, it kinda works the same with the exchanges, but not on such a huge scale. That is why knowing limits and having a sufficient amount of backing capital is vital to having peace of mind. Never go all-in on a trading position.
Stop-loss orders are there for a reason and using them is the key to keep a trader from sliding into losses. By placing them at reasonable distances from the limits, traders can minimize their losses. If stop-loss orders are neglected, then trades can quickly spiral down the drain and drag every trade capital penny down with them.
Sporadic trading is not the way to go on the crypto market. If a trader has no strategy or plan, they will quickly lose all of their capital. Without a plan, the mistakes outlined above and many others are surely guaranteed to happen. Novice traders should learn and build on successful traders’ plans before embarking on Forex on their own. That is why reading and studying the ins and outs of the market is the first step, not a headlong plunge into practice.
Doing It Big: Trading is not a hobby, it is a job, and as a job, it should bring money, not drain it. To make sure that trading brings pleasure and not nerve-wracking emotional turmoil, traders must do it right. And the right way is to leave emotion aside and trust the numbers and the plan.
If you got here and still want to know more, then make sure to also check out our Beginner’s Guide to Trading Crypto!
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