Crypto Trading Guide – Common Pitfalls you are Likely to Face
Have you been attracted to the cryptocurrency space because you have seen individuals make some massive gains in this sphere? A lot of people have jumped on the bandwagon, thinking how hard it could be to do the same. This is both wrong and right. Your original presumption is not far off the mark because there is undoubtedly a lot of money that you can gain in cryptocurrency. When Bitcoin and other cryptocurrencies hit their peak in 2017, this is exactly what people did and it happened again in 2020. However, the downside is that you will first have to deal with some growing pains of being a trader before you can make gains.
So, what do you do? It is best to go armed with the knowledge of the common pitfalls you are likely to face in order to be prepared and also figure out how you can deal with them. What are they? Check them out below:
‘I won’t make the same mistake because I am smarter’ mentality
You would be surprised to see the sheer number of individuals who enter the crypto market with this mentality and it can actually turn out to be their downfall in the long run. Sure, you are smart and you could have a ton of qualifications, certifications, and other achievements to prove it. But, you have to remember that trading is not the same as everything else. This is a psychological game and not rocket science, so even a high school student will be able to figure out how to read charts, gauge the market cycles and read the indicators.
The real question is whether you are willing to put in the time and effort that’s needed for learning these concepts and then implementing them. The problem most people face is that the strategies they have to learn are counter-intuitive to how they are usually wired. ‘Buy the dip’ is a common war cry in the crypto space, but most people wouldn’t be willing to buy anything that has been in the negative. This is just one of the numerous ways smart people can end up as market losers. They are resistant to using the tried and tested strategies because for most of their lives, they have moved off the beaten path and done something different and it has worked for them.
However, the same cannot and doesn’t apply to trading. It is not possible to ‘force’ anything in your favor here and you will have to sit down, study the charts, observe the markets and monitor the indicators, just like others have done. If not, you are going to lose and the crypto market can be merciless. Therefore, you need to remember that becoming familiar with crypto market fundamentals is a vital foundation of the crypto world.
Becoming a Part of a Pump and Dump Group
Even though most people will not like to admit this, but the fact is that nearly 95% of the crypto traders have been part of a pump and dump group, whether wittingly or unwittingly. It could be because of the potential gains and you could have rationalized it in your head for it to seem sensible. Most of these groups focus on coins with a low market cap, which makes it possible for them to bump up the coin’s price by a couple of percentage points. So, a lot of traders figure that they can become a part of these groups and make some easy money.
Unfortunately, this is not how it works out in most cases. These groups usually comprise of ‘whales’, who have a lot of capital to invest and they decide the coins they want to pump. They take their positions in the crypto, even before they begin the pump. Once they have accumulated enough, they push the price upwards gradually. By the time the pump is announced to the general public, they have already made 100% returns, if not more. The other people who believe they are also taking part in the pump are basically buying the sell orders of the whales who have already made their returns. When they have sold off all their coins, the whales exit the market and continue with their day. You, on the other hand, will be left waiting and hoping for a ‘pump’ that doesn’t come.
At the end of the day, you will be ‘dumped’ on by people who realize they have been played and start selling what they have.
Making Emotional Trades
During your trading career, there will come a time when you make a really terrible trade or a really good one. In either scenario, you will be very vulnerable. This is because your emotions will be at their peak. When people make a really great trade, it makes them feel like a genius. The euphoria you experience by making copious amounts of money out of the blue, combined with the fact that it happened due to your own strategy, will give rise to a dangerous level of exuberance and confidence. If left unchecked, you could end up making some really stupid decisions.
It is one of the top reasons why a number of great traders were not able to survive in the crypto market for long. The hubris accompanying successful trades pushes traders to make riskier investments under the pretense that they have a good strategy or superior knowledge. Of course, you also have to consider the other side of the coin. When you make a loss on a trade, you will be angry at ashamed at yourself. How do most traders react? They make another trade rather than walking away and end up increasing their losses because they didn’t put any thought into the new one. It is just desperation that takes over and it can wipe out all the profits you have made.
Learn to avoid these common pitfalls and you will be able to learn the art of crypto trading while keeping losses at a minimum.