The 2000%+ returns in Bitcoin, Ethereum, Litecoin, and many other coins in 2017 attracted a huge amount of retail investors into the cryptocurrency space. Most of these investors got wiped in 2018 during the huge pullback in BTC and all other altcoins cause they had no clue what they were doing.
Most of these retail traders have never invested in any asset class before, and have little to no experience in investing. If you’re new to cryptocurrency trading (and investing in general) you need to avoid these mistakes in order to have any chance of making money trading cryptocurrencies:
1. They Trade On The Wrong Time Frames
Many new cryptocurrency traders make the mistake of day trading on the 5 minute and 1-minute charts. When you’re trading something that is open 24/7, you need to focus on the bigger picture. Focusing on small time frames will cause you to stop out of your positions and take profits prematurely. For trading cryptocurrencies, the smallest time frame you should look at for intraday trading is the 15 minute chart.
2. They Watch Every Tick
Its very tempting to check your BTC investment every 5 minutes, since it’s so volitile and the markets are 24/7. This will cause you to overthink your trades and cause you a ton of unnecessary stress in your life if you do not have restraint. The trades will move whether you are watching them every minute or not. Set your stop and forget about it until it gets to your first profit target. Set alerts on your phone at key levels you’re looking to buy and sell at, and only check on it a few times a day.
3. They Oversize Their Positions
Another reason why people feel the need to check their cryptocurrency investment so often is because they have put a huge portion of their net worth into the investment. If you only put a small fraction of your net worth in, you won’t feel stressed out by losing the money if the trade doesn’t work out. Sizing appropriately will take a lot of emotion out of your trading.
4. They Buy Spikes
New traders have no sense of timing. They buy when everyone is buying. They see something go up, and they assume that it will continue to go up. This is the wrong mentality and will lead to emotional trading. If something spikes up big and you want to be in, wait for it to retrace a bit (cryptocurrencies almost always come back to test lower levels after making a move).
5. They Sell Dips
New traders also sell when everyone else is selling. New traders will often buy on a big spike and then see the cryptocurrency reverse immediately, then panic sell, and then see it go right back up after they sold. You have to be buying on dips to give you good risk versus reward on your entries, and not put yourself underwater as soon as you enter your position.
6. They Chase Entries
As a trader, you need to understand when a crypto is extended. New traders will buy a crypto that just went up 200% in a week and expect it to keep going up at that rate. A good example is Litecoin about a month ago. I’m sure almost everyone reading this knows at least 1 person that bought Litecoin in 2017 above $300. It went from $100 to almost $400 in under a week. The probability of it continuing up is extremely low after a move of that magnitude. New traders need to understand how cryptocurrencies move and understand when it is too extended to buy.
7. No Risk Management
Risk management is an essential part of successful trading. Inexperienced traders need to understand good trading involves cutting losers short in addition to letting winners run. No one knows if any given trade will be a winner, so you have to prepare for every trade you take to be a loser, and have a plan. If you don’t prepare for a trade going against you, you risk losing a huge portion of your account in one trading day.
8. No Trade Plan
You need to know three price points before entering a trade: What price you will enter, what price you will put your stop loss, and what price you will take all or partial profits at. Many new traders go into a trade without planning anything, and as a result, make emotional and rash decisions because they did not prepare at all.
9. No Understanding of Technical Analysis
Cryptocurrency trading is almost entirely dictated by technical analysis. Trading cryptocurrencies without understanding where support and resistance on the charts are is like trading blind, especially if you’re looking to day trade them.
10. They Follow Others’ Trades
Following people’s trades does not work in the long run. You don’t know what their trading plan or risk tolerance is when they call out their entry. They might be just scalping it, doing a multi-day hold, or day trading it. Instead, you should use other traders alerts as trade ideas, and not an immediate buy signal. See if their trade fits your game plan instead of just immediately jumping in.