Whether experienced or new, there are trading mistakes anyone can make. Let’s consider 5 of them and see what lessons can be learnt.
John, a newbie trader, was excited to start his trading journey. He had read numerous success stories on Twitter about traders who made millions and was convinced that he too could achieve the same.
Having found out about leverage trading and some DeFi “degen” stuff, he put in all his money, hoping to make quick profits. Unfortunately, he lost everything in a matter of days.
John’s story is not unique, and many traders make similar mistakes, leading to disastrous outcomes. In this article, we will discuss the top 5 mistakes traders make and the lessons we can learn from them.
Top 5 Trading Mistakes
Mistake 1: Lack of proper research
One of the biggest mistakes traders make is not doing enough research before investing. Buying a crypto asset without doing proper research on the project is a recipe for disaster. You simply do not buy a coin/token just because you think it will “go up”.
For instance, someone you respect on CT made a tweet about this new project tagged as “the next 100x”. The tweet mentions the usual stuffs; “bassed dev”, “contract renounced”, “moonshot”. If you bought that token based on that information alone and you lost money, then that’s on you.
Lesson: Always conduct thorough research before investing. If you are not sure what to look for, check out this article on how to conduct fundamental analysis
Mistake 2: Overtrading
Another common mistake is overtrading, where traders execute multiple trades in a short period, hoping to make quick profits. This can lead to burnout and reduced profitability due to transaction costs and spread.
For example, suppose you open and close multiple positions in a day without a solid trading plan. In that case, you are likely to lose money due to transaction costs and market volatility.
Lesson: Develop a solid trading plan and stick to it. Avoid overtrading and focus on quality trades. Additionally, always keep an eye on transaction costs and spread.
Mistake 3: Ignoring risk management
Risk management is crucial in trading. Ignoring risk management can lead to significant losses and even bankruptcy. For instance, your favourite CT influencer tweeted a chart showing $DOGE is about to pump 30%. If you opened a 20x leverage using all your money without a stop loss and the price of $DOGE drops by 6% from your entry, your account will get wiped out. And you become poorer.
Lesson: Always incorporate risk management strategies in your trading plan. Set stop-loss orders and diversify your investments to minimize losses.
Mistake 4: Emotions driving trading decisions
Trading can be emotional, and emotions can drive trading decisions. Fear, greed, and excitement can lead to impulsive and irrational trading decisions, leading to losses.
For example, suppose you panic sell your crypto assets during a market downturn due to fear of further losses. In that case, you will miss out on potential gains when the market recovers.
This also applies to buying crypto out of excitement or just because you hope the price goes up
Lesson: Always trade with a clear mind and avoid making decisions based on emotions. Develop a trading plan and stick to it.
Mistake 5: Overconfidence
Overconfidence is a common mistake among traders, especially those who have experienced early success. Overconfidence can lead to complacency and careless trading decisions, leading to losses.
For instance, suppose you have had a string of successful trades and start taking unnecessary risks without proper research or risk management. In that case, you are likely to incur significant losses.
Lesson: Avoid overconfidence and always stick to your trading plan. Conduct thorough research and incorporate risk management strategies in your trading plan.
Conclusion:
In conclusion, trading can be lucrative, but it can also lead to significant losses if not done correctly. As a trader, always conduct thorough research, develop a solid trading plan, incorporate risk management strategies, trade with a clear mind, and avoid overconfidence.
By avoiding these 5 trading mistakes, you can improve your trading performance and increase your chances of success.
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