by Introduction
Crypto trading is an exciting yet challenging endeavor, offering the potential for significant profits but also carrying substantial risks. Many traders, especially beginners, fall into common pitfalls that drain their accounts and hinder their success. Understanding and avoiding these mistakes is crucial for long-term profitability and risk management. This blog will explore 11 of the most frequent mistakes made in crypto trading and how you can steer clear of them.
Mistake #1: Entering Trades for Emotional Reasons
There’s an anecdote that goes: when the Pope saw the statue of David, he asked Michelangelo how he created this masterpiece of all masterpieces. Michelangelo answered, “It’s simple. I removed everything that’s not David.” This concept is known as via negativa, the practice of understanding something by uncovering what it’s not.
In trading, via negativa teaches us one huge lesson: good trading may be many things, but it is definitely not emotional. Trading is about removing everything that doesn’t help you. This way, you can focus on testable rules that safely make you money. The more you test the rules, the more you can predict your risk and avoid losses. When emotions come into play, all of that discipline flies out the window, and losses start piling up.
Mistake #2: Thinking You Can’t Make Money in a Bear Market
In crypto, there’s a common belief that you can only make money during bull runs. But what many people don’t understand is that bull runs, while fun, increase trading volume and leverage use across the market, which drives up fees. Bear markets, by contrast, have lower trading volumes and fees, making them an excellent opportunity for disciplined traders to profit.
For example, Kyle, the head of research at Fova, adjusts his strategy during bear markets to maintain a consistent portfolio growth. He’s built his portfolio to nearly $3 million by adapting to the market and sharing his trades in real time. Adjust your strategy to the current market conditions, and you’ll see that bear markets can be just as profitable.
Mistake #3: Changing Your Level of Risk Based on Your Win Rate
The story of Israel Adesanya vs. Alex Pereira in MMA illustrates this mistake. Pereira, despite being in a winning position, changed his risk exposure, leaving himself vulnerable. The result? A brutal knockout.
Similarly, in trading, increasing your risk after a streak of wins can undo months of progress. Focus on consistent risk management rather than adjusting risk levels based on emotions or recent wins. Trading success is about minimizing losses, not chasing profits recklessly.
Mistake #4: Thinking Leverage Will Make You Rich Faster
High leverage might amplify gains, but it also amplifies losses and fees. Using excessive leverage, like 90x, is a quick path to losing money. Instead, let your stop-loss dictate how much leverage you can safely use. For example, if your stop-loss indicates a 1% risk, adjust your leverage accordingly. Survival and consistent wins over time, not high-risk gambles, will make you rich faster.
Mistake #5: Using New Indicators Without Testing Them
Just because a new indicator exists doesn’t mean you should use it. Testing indicators through platforms like TradingView allows you to see what works before risking any money. Entering trades without testing an indicator first is like entering a gunfight with an untested weapon—a recipe for disaster.
Mistake #6: Trading on an Exchange That Doesn’t Reveal Reserves
A Merkle root provides a snapshot of all balances held by an exchange, proving whether it has sufficient reserves. Trading on exchanges that don’t reveal their reserves is risky. Stick to exchanges with 100% backing to ensure your funds are safe.
Mistake #7: Doubling Down on Losing Trades
Revenge trading—trying to recover losses by forcing winning trades—is one of the worst mistakes traders make. Accept losses and move on. Proper risk management ensures that individual losses are small, making it easier to recover without resorting to reckless behavior.
Mistake #8: Jumping Into Trades Without All Rules Being Met
Impulsive trading decisions can cost you dearly. Your rules, based on tested indicators, keep you safe by minimizing risk. Always ensure all your rules are met before entering a trade to avoid costly mistakes.
Mistake #9: Allowing Other Traders to Influence Your Decisions Without Proof
During the pandemic, everyone seemed to become an expert overnight. Similarly, in trading, countless people offer advice without proven results. Only take advice from experienced traders who can back their claims with data, and always double-check their suggestions.
Mistake #10: Taking Risk Management Advice From Unprofitable Traders
Social media often highlights big wins, but it rarely shows the losses. Many traders who boast about large profits fail to manage risk effectively over time. Focus on win rates and overall profitability rather than listening to traders who rely on luck.
Mistake #11: Not Having 6 to 12 Months of Liquid Cash Reserves Before Trading Full-Time
Trading is inherently risky, and safety should always come first. Before trading full-time, ensure you have 6 to 12 months of liquid cash reserves. This safety net allows you to focus on trading without external financial pressures, reducing the temptation to take unnecessary risks.
Conclusion
Crypto trading, while rewarding, requires discipline, strategy, and a strong focus on risk management. By steering clear of these common mistakes, you not only safeguard your investments but also position yourself for consistent growth in the market. Remember, the goal isn’t just about making money; it’s about doing so sustainably over the long term. Trade wisely, stay informed, and ensure you are always learning from both your successes and failures.
