Starting to trade in cryptocurrencies can feel a little overwhelming, especially with all of the options available. In fact, some would even say that feeling overwhelmed is a good thing, as opposed to making unreasonable large trades. It shows that you care enough about trading to not underestimate it
Crypto trading can be a great way to create a passive income, however, it can also be a quick way to burn through your savings if you are not careful. So by looking at some of the common mistakes that you should avoid when trading, you can get one step closer to becoming a better trader.
Adopting Complex Strategies
You should never try to “go the extra mile” when trading in crypto, especially when you are just starting out. While it may be more impressive if you have a more complicated trading plan, is it really worth having something that you do not properly understand yet.
Therefore, you should instead try to have a less complicated strategy and focus on learning the fundamentals of trading. As you start to get better at trading and understand the market better, you can try your hand at more complicated strategies in the long run. By focusing on fundamentals first, you are less to take on more risk than you can handle.
Trying to “Make it All Back in One Go”
Another common mistake that most people will make when they start trading is that they will try to make up for any losses in one big trade. So even if they had smaller losses accumulated on them, they will try to place all their bets on one massive trade that will help them win it all back.
This is not a very good trading strategy, since there is a possibility that you could compound you losses if the big bet does not pay off. In fact, there is a higher chance that it will not pay off. Instead, you should focus on making up for those lost funds in smaller increments and over a lot term.
Selling without Developing a Proper Risk Management Plan First
The key to making good trades in the crypto market is to properly manage your risk. Before you make any trades or short any options, you should create a proper risk management plan first. If you are not careful when shorting cryptocurrencies, you could incur a major loss.
Instead, you should be careful before you make any major trades, and consider the risk that you are taking on. A good way to think about the trades you make is that you will always lose the money you trade with, so think of how much you could lose.
Not Taking Market Volatility into Consideration
An unfortunately common mistake that new traders will find themselves making is trading without properly considering market volatility. Volatility controls the price of an asset, and it is impossible to predict just how volatile the market could be.
So even if your predictions on the price of a crypto asset turn out to be right, you also need to consider if it will offset the premium you paid.
Being Skeptical of Long-dated Options
While long-dated options are never the best way to take advantage of short-term price action, it can be a good addition to your portfolio. The long-dated options will likely benefit you in the long run, as you can keep it on the side-lines until the right time to sell.
Even if you would like a shorter exportation date, it can be a lot more difficult to control risk in the short run.
Getting better at crypto trading takes a considerable amount of time and effort. But more importantly, it requires you to be careful and avoid certain mistakes. By keeping your eye out for these common missteps, you will already be on the right track to getting better at trading.