Crypto Trading 101 | Crypto Trading Mistakes To Avoid
Day trading is a popular strategy in today’s cryptocurrency markets due to the volatility of prices in digital assets. It can be a lucrative endeavor - but it is not without its risks. As with any investment, there are certain mistakes that you should avoid if you want to maximize your profitability and minimize your losses. In this article, we review the basics of day trading and take an in-depth look at the mistakes to avoid while day trading in cryptocurrencies.
Why should you watch out for crypto trading mistakes?
Crypto trading can be an exciting and potentially profitable endeavor, but it's important to be aware of the potential pitfalls that can come with it. Making mistakes in crypto trading can lead to significant financial losses, as the market can be highly volatile and unpredictable.
By being aware of the potential mistakes in this article and taking steps to avoid them, you can increase your chances of success in the world of crypto trading.
What is Day Trading?
Day trading refers to the act of opening and closing a cryptocurrency trade within the same day.
The strategy is performed with the intention to buy low and sell high on any particular digital asset with the intent to make a profit.
Moreover, day traders leverage the volatility of cryptocurrency prices for making a significant profit within a short time frame.
Day traders primarily use technical analysis tools to understand the price movements of a cryptocurrency.
Chart patterns and technical indicators assist in finding the best positions for opening and closing a trade.
Cryptocurrency day traders also use fundamental analysis to follow the short-term impact of the latest news on a particular cryptocurrency asset.
However, day trading is also considered risky for the primary reason that markets are volatile, and traders can lose their capital. Here are some of the mistakes to avoid while day trading in cryptocurrencies.
What are the advantages of day trading compared to other trading styles?
Potential for profit: Day trading can potentially be profitable, especially if you're able to correctly predict market trends and make informed investment decisions.
Short-term investment: Day trading allows you to buy and sell cryptocurrencies within the same day, which can be a shorter-term investment than holding onto a cryptocurrency for a longer period of time.
Flexibility and Control: Day trading allows you to be flexible and to quickly adjust your portfolio based on market conditions. Day traders have more control over their trades, as they can quickly adjust their positions based on market conditions.
What are cons of day trading?
Risk of loss: Day trading carries a high level of risk, and it's possible to lose money if you make the wrong investment decisions.
Volatility: Cryptocurrencies can be highly volatile, which means that their prices can fluctuate significantly over short periods of time. This can make it difficult to predict the direction of the market and can lead to significant losses if a trade goes against you.
Time-consuming: Day trading requires constant monitoring of the market and the execution of trades, which can be time-consuming.
Stressful: Day trading can be stressful, as it involves making quick decisions and managing risk in a volatile market.
Complexity: Cryptocurrency markets can be complex and may require a high level of technical knowledge to navigate effectively.
What are common mistakes when day trading cryptocurrencies?
Trading too much
Due to the volatility in the cryptocurrency world, there are many opportunities to day trade, However, becoming overzealous and dedicating too much capital to day trading can lead to significant losses.
It is advised that you use logic and a strategic plan instead of excitement to trade. Because day trading presents so many opportunities to trade, new day traders can find themselves glued to their computer screen and over-analyze everything, which could cause them to make wrong decisions.
The cryptocurrency market is constantly fluctuating, and you may miss a few opportunities. However, it is necessary to set aside your emotions while performing a day trading strategy.
Unwillingness to do your own research
Most day traders spend time waiting to buy signals from self-proclaimed expert cryptocurrency traders on social media platforms like Twitter, Telegram channels, and even WhatsApp groups.
These so-called experts might mislead you and you may end up losing all your capital. Always do your research on their trading results before following their signals.
If you rely on somebody else's opinion to know when to buy or sell, then you have a task ahead. As a cryptocurrency trader, you should also do your own homework and learn the applications of different cryptos.
Find out what drives the value of specific cryptocurrencies. Besides, if you want to pursue day trading, you should ensure that you study basic trading skills and how to conduct both technical and fundamental analysis.
Trading money you cannot afford to lose
Many day traders early in their trading career stake all their life’s savings with the hope of getting rich in a single day.
Cryptocurrency trading is not an insured venture and even professional traders at times suffer massive losses. Day trading is not a get-rich-quick scheme but a profitable strategy that requires proper execution, planning, risk management, and trading skills.
Proper risk management skills help minimize losses and protect day traders from losing all their capital. After all, a trader who has made significant profits day trading cryptocurrencies could lose all their money in just two bad trades without applying proper risk management.
Excessive risk doesn't hold any profits, and the risk-reward ratio should balance out to ensure you don't make massive losses.
As a general rule, the maximum risk per trade should never exceed 1% of your total capital. Even professional traders adopt this risk-maximum rule to protect their capital.
Trusting the Market
Sometimes traders tend to make trading decisions based on what they desire instead of the correct price movement.
The cryptocurrency market constantly changes. In other words, whether long or medium-term, price cycles depend on the trading conditions, and the cryptocurrency market is highly volatile.
Since you cannot change the market, you need to adjust your day trading plan. As a day trader, you must accept market movements and understand that the constant growth of your capital over time can be boosted by increasing position size, generating more profits. Switching to other strategies can also increase your profit margin.
Also, you may need to alter between different strategies depending upon market conditions.
Trading FOMO (Fear of missing out)
The fear of missing out (FOMO) often shows itself in the circumstances such as exiting a position early to avoid making losses or buying too late at premium prices.
You feel you are letting a vital opportunity slip away. Much often, it is the fear of losing out that makes us lose out making profits. Although extricating yourself from FOMO is somehow tricky, it is critical to success.
To avoid trading FOMO, you should lay down a set of principles to guide you in day trading cryptocurrencies. Also, define limits on the maximum admissible profits or losses.
Besides, new profiting opportunities in the world of cryptocurrencies come up every day. Just relax and allow the fear to pass you by.
Don't overtrade crypto.
Don't overtrade could align with FOMO, but it deserves its own point. Making profits on your trades and hitting a new dopamine level in your brain could happen, and you might think, "Let's make another trade.".
This could turn out bad because you need to remember all the other fundamentals of trading and start losing all the profit you have made.
How can Cryptohopper help me with day trading?
Cryptohopper is a platform that offers automated cryptocurrency trading services. It can potentially help with day trading by providing a range of tools and features that can assist with decision-making and risk management.
For example, Cryptohopper allows users to set up and customize automated trading strategies, which can help to eliminate the risk of making impulsive trades based on short-term market movements.
It also offers a range of technical indicators and charting tools that can help traders to analyze market trends and make informed investment decisions.
In addition, Cryptohopper provides a range of risk management features, such as stop-loss orders and trailing stop-loss orders, which can help to minimize losses in the event of a market downturn.
Bottom line
Patience and discipline are essential to successful trading, not just cryptocurrencies but any other security.
Always remember, it might be easy to earn profits from the cryptocurrency market but keeping it might prove difficult. As such, never let greed and emotions get the best of you. If you can practice patience, do your research, and trade smart, then day trading could be the strategy for you!
