Getting a handle on day trading cryptocurrency can be difficult, as there are so many cryptocurrencies you can choose to invest in, and the market can change rapidly.
If you don’t know how to exchange properly, you may lose a lot of money.
Here are some of the cryptocurrency day traders making the most common mistakes.
Trading on FOMO and FUD
Instead of analyzing if you trade based on your emotions, chances are good that you will lose your money soon.
And if you’re not careful, all but your emotions will be clouded by news cycles and forums.
Alternatively, you can try this: build your own day-to-day trading strategy with indicators and guidelines that you understand and adhere to.
So read the news, but read it with a grain of salt— and try not to make rumor-based trading decisions that could be dismissed the very next day.
You shouldn’t buy just because you see that the price is rising and that fear is absent.
Think of evaluating your rules over time: look at your performance and collect data on rules that make money and lose money.
Don’t worry about revising the rules that lose you money.
Results-driven updating of your rules can help to keep you disciplined and resistant to FOMO and FUD.
Trading Too Often
You can often prevent significant loss of streaks by avoiding over-trading that could otherwise seriously damage your portfolio.
After all, almost all of the coins seem to go down with it when the market is down.
Always set yourself a goal for a certain number of trades per day, as this can lead to actions that are less than ideal and force you to take unnecessary risks.
We recommend instead that you use a carefully selected set of rules on which you base most of your business.
If you find yourself too often deviating significantly from these rules, re-evaluating your trading strategy may be wise.
Using the wrong tools
Not all cryptocurrency products have been designed with day trading in mind, and some may end up significantly restricting one’s ability to trade on a daily basis.
This is a good example of wallets.
Most cryptocurrency storage solutions are built with full security in mind (for good reason!), such as hardware wallets like the Trezor and Ledger.
But these are not intended to be used with day trading: the amount of time it takes to sign and confirm wallet transactions can delay the trades you’re trying to do perfectly.
Alternatively, you might do this: keep the cryptocurrency on the exchange where you’re doing the day trading that you use for day trading.
Look for day-trading security tools — services such as whitelisting and U2F support.
Using Bad Risk-to-Reward Ratios
One of the most important aspects of trading is a good risk-to-reward ratio.
Beginners tend to think that making more winning trades than losing ones is the only way to profit from trading.
But, more often than you win, it’s quite possible to lose and still come out with a gain.
Typically, learning how to use a variety of market indicators is one of the first points on the to-do list of any novice trader.
It’s easy to get lost among the plenty of indicators available, though.
You have the RSI, MACD, SMAs, EMAs, and dozens of others to choose from.
It’s a common mistake to think you need to fully understand all of these before trading can be profitable.
The reality is that some of the most successful traders out there use very little technical analysis, usually relying on only the volume and price candles to do their business.
The single most important measure is the price action.
Watch the price for a few hours, get comfortable with it, and then start to apply indicators. (But keep in mind that no predictor can predict the future accurately, so use it sparingly.)
Tight Stop Losses
The stop loss feature offered by most cryptocurrency exchanges is one of the most valuable tools that a trader can use and in the right conditions can shield you from a heavy loss.
Most new traders, however, make the mistake of putting their stop-loss too close to the initial purchase price.
Bitcoin and cryptocurrencies are generally highly volatile, which can trigger a close stop loss before the price has a chance of climbing — potentially losing out on an opportunity that had a small dip before a big climb.
When setting your stop losses, it is extremely important to recognize support / resistance lines, even if it means you will lose more money.
Such support lines reflect points that, under normal conditions, are difficult to break — usually where there is a strong buy wall.
Poor Risk Management
Using risk management is one of the most important tips for cryptocurrency trading.
Not having a risk management plan can lead to major losses.
You need to learn how to hedge your trade if you invest to save you from wasting your time and resources.
Purpose to use various exchanges.
When you notice any signs that the market may change, buy the least valuable cryptocurrency and sell a small amount of the most valuable.
Obviously, if the value increases, you will make money, but if the value decreases, you will also be protected–just buy the stock again for a lower cost.
Do not allow your emotions to overwhelm you when you encounter the day-trading roller coaster.
As long as you control your impulses and are equipped with the right cryptocurrency market knowledge, you will be closer to achieving your goals.
Ultimately, cryptocurrency day trading is challenging but definitely worth it.