Mistakes That Novice Traders Should Learn To Avoid
Following the current dip that the cryptocurrency market is in, it’s easy to see why the desire to start trading is strong. Previously expensive assets can now be purchased at discounted prices. This makes the dip the perfect time to start trading.
However, keep in mind that even when there are scores of people who have made a fortune trading cryptocurrency, the fact remains that the inherent risks associated with this type of trading can also leave you penniless if you aren’t careful. Every type of trading assumes some risk. It’s all a matter of managing risk and making sure that you don’t make critical mistakes. Here are some mistakes that you should be wary of.
Not Monitoring The Market
Good trades are not made based on hunches and emotions. Luck has very little to do with the success or failure of any trade. Veteran traders make trading decisions based on their technical analysis of the market. The cryptocurrency market is so volatile that even one night of bad news can cause an asset to crash overnight. It’s important to be vigilant over news and current events that could affect a particular crypto. A prime example of such events is the recent Ethereum hardforking, which caused the value of Ethereum to increase.
Trading Whenever An Asset Breaks Out
Considering the inherent volatility of the crypto market, several breakouts and breakthroughs can occur within a span of days, and even hours. While it can be tempting to wait for an asset to increase in value even further before taking profit, you’d be far better off by strictly sticking to a set take-profit level based on your technical analysis. Inversely, it’s also important that you set a stop-loss order in order to mitigate the effects of when an asset deteriorates in value.
Allowing Yourself To Be Influenced By Availability Bias
It’s normal for current events to hold influence over market conditions. In fact, social media platforms really do affect the financial markets. A good example of this is when Elon Musk tweeted his support for Dogecoin, which then caused the value of Dogecoin to spike.
While it’s acceptable to ride along with the hype generated by certain events, it’s important to know when to buy and when to sell, and this decision should be driven by historical data and accurate prognosis rather than trends and news.
Trading requires discipline and analytical skills to pull off properly. Market manipulators also bank on the availability bias to pump and dump assets for their benefit. Again, your primary tool here should be your ability to evaluate which assets are worth buying. It’s also important to identify a working time frame so you know whether to trade near-term, short-term, or long-term.
Trading is inherently risky, and these risks are only further amplified by a lack of knowledge and by poor decision-making. The information you need is readily available on the internet and through numerous software options. This is one of the many aspects that require discipline and foresight. A general rule is that if you are only starting to trade, start only with a small amount and try to master the art of trading before investing more money.