Everyone reading this knows someone who had a big draw-down at some point in the past 2 years trading cryptocurrencies. The reality is, most of these people were destined to fail. Most of these people thought trading cryptos would be easy money, and went in with almost zero knowledge of technical analysis, fundamental analysis, and trading psychology.
If you don’t understand the biggest reasons why most cryptocurrency traders fail, you won’t know the biggest obstacles on your path to profitability. Here are the most common causes of failure I see in new and even experienced cryptocurrency traders:
1. They Get Emotionally Attached To A Project
Emotional attachment is a fundamental part of human nature. It is very easy to get emotionally attached to a project because it is in a field you love or they have someone on their team you are a huge fan of. Although these can be good fundamentals to build your investment case, these are not reasons for a cryptocurrency to have value, or expect it to increase in value in the future. Emotional attachment will lose you money in trading. You need to trade what the market is telling you, not what you hope to be true.
2. Lack Of A Healthy Work-Life Balance
The 24/7 cryptocurrency markets make this very difficult. You can get burned out very fast if you cannot maintain a normal and healthy lifestyle outside of your trading. What is the point of trading if you don’t have freedom. Trade with small enough position sizes that you can go to sleep without worrying about a market crash. Poor health and sleep deprivation will have huge negative impacts on your trading.
3. They Do Not Adapt
Many cryptocurrency traders were wiped out the last couple weeks. Blindly buying huge dips in BTC and altcoins does not work anymore. You need to develop a trading strategy that has an edge to survive in the long term, and can survive in any market condition. Some of my best trades the past few weeks have been short-selling cryptocurrencies (making money when a crypto goes down). Learning to short sell can help you make money in bear markets, as opposed to only buying in bull markets. You can learn more about how to profit from short selling cryptocurrencies in the here.
4. Don’t Respect Price Action
This ties back to getting emotionally attached to projects. If the fundamentals look great on a project, the price has retraced almost 80% from your entry, and you are still holding your position, you are not respecting price action. The market doesn’t care how great you think the coin’s founder is. If there are more sellers than buyers, you will not make any money. Price action is king. Opinions do not make you any money until the market says so.
5. They Average Down
“It’s going to reverse eventually I’ll just do one more add”. This mindset will lead to a very brief and painful trading career. A ton of traders got destroyed in 2018 by averaging down on BTC and other altcoins after they bought right near all-time highs. This lead to these traders taking an even bigger loss as most cryptos retraced even further from where they added. You always need an exit strategy before jumping in any investment. Otherwise you risk losing a huge portion of your portfolio in a short period of time. Stop losses are your best friend.
6. Unrealistic Expectations
Many cryptocurrency traders jump into trading without any type of formal education on the topic. They think it will be easy, because they saw so many people make a ton of money last year from Bitcoin and other altcoins seemingly without effort. The reality is trading is an endeavour that needs a thorough education and planning. Cryptocurrency trading is just as difficult as trading stocks, futures, or any other financial instrument. You need to work your ass off to consistently make money in this profession.
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