In recent years, the world community, including Indonesia, has begun to pay great attention to crypto assets.
Therefore, the digital asset market is becoming flooded with investors and traders trading crypto.
The crypto trading activity itself is almost similar to stock trading. The difference is in the object being transacted.
Trading is also a way to get profit from crypto. However, in practice, many novice traders still get caught up in mistakes and have to lose money.
Therefore, it is very important to understand the basics of crypto trading before starting this trading activity.
So, to learn more about crypto trading and what mistakes novice traders often make, see the following review.
What is Crypto Trading?
Crypto/crypto trading is trading activity, both selling, and buying, digital currency assets in the digital asset market. The purpose of trading, of course, is to make a profit.
As for making a profit, crypto traders can buy crypto at a low price, then sell it back at a high price. That is, traders will profit from the price difference created in the crypto market.
Not only for profit but crypto trading can also be used to diversify investment portfolios. This is because crypto assets have unique and different characteristics from other assets, such as stocks or bonds, making them suitable for diversification.
It should also be noted that trading and investing in crypto are two different things/activities. The difference between the two can be seen in many ways, including goals and timeframes.
If observed from a goal perspective, crypto investment usually aims to gain long-term profits from crypto assets. The trick is to buy crypto assets, then hold (not sell) them for a certain period.
On the other hand, the goal of crypto trading is to make profits in the short term. The trick is to take advantage of rapid price fluctuations/changes in crypto assets.
Common Mistakes Beginners Make
In carrying out trading activities, of course, traders must have in-depth knowledge regarding crypto assets and the intricacies of the crypto market, including methods of analysis.
Even so, many traders, especially beginners, get caught up in several mistakes when trading crypto due to a lack of understanding.
Therefore, it is important to understand what mistakes beginners make in crypto trading. The goal, of course, is to avoid unnecessary losses.
The following are some mistakes that are often made by beginners in crypto trading, including:
1. Lack of Understanding of the Crypto Market
The first mistake that traders often make is related to a need for more understanding of the crypto market. Understanding the crypto market and blockchain technology is important, especially for novice traders.
The way to avoid this one mistake is through proper education and research. Related to this, novice traders can learn about the basics of crypto first before engaging in trading activities.
Besides that, it is also important to follow reliable news when trading crypto. Then, novice traders should join the crypto community to gain knowledge about crypto trading.
2. Not Making the Right Trading Plan
The next mistake is that novice traders must make the right plan. Please note it is important to make a proper crypto trading plan to optimize the chances of success for novice traders.
It will help to avoid making decisions based solely on emotions, set definite entry and exit rules, manage risks appropriately, and identify opportunities in crypto trading.
Related to this, several tips can be applied in creating an effective trading plan, including setting clear goals, identifying suitable trading strategies, and carrying out proper risk management.
3. Emotion-Based Decisions
Next, a common mistake beginners make in crypto trading is making decisions based on emotion. This can have a negative impact because traders must remember to consider other factors.
Several ways can be done to manage emotions and make more rational trading decisions, including recognizing the emotions that arise when trading, such as greed, then managing them.
Furthermore, it is also important to maintain calm while trading to reduce negative emotions’ influence. Besides that, also use a careful trading plan and perform a rational analysis before making a trading decision.
4. Ignoring Fundamental and Technical Analysis
Another mistake of traders is paying attention to fundamental and technical analysis. In fact, in crypto trading, the combination of these two analyses provides a broader view of the market and crypto assets.
Fundamental analysis will help understand an asset’s value and growth potential, while technical analysis will help identify price patterns and set entry and exit levels.
It should be noted ways to learn and apply these two analyses in crypto trading, including by reading educational materials about trading available in books, articles, and other sources.
Another way is to study economic and financial concepts and keep updating news and developments in the crypto industry. Furthermore, it is also important to learn the basics of charts, including candlesticks, complete chart patterns, and others.
5. Not Understanding the Risks Involved
The next mistake is that traders must understand the risks of crypto trading. The associated risks include high volatility in the crypto market with significant price fluctuations in a short time.
Then, there are also other risks in terms of security and loss of assets. In this case, unsafe storage or use of trading platforms vulnerable to cyber attacks can result in the loss of crypto assets.
Therefore, some effective risk management strategies are needed that novice crypto traders can implement, including setting a risk limit that can be taken on each trade, usually no more than 1-2% of capital.
Another strategy is to use a stop loss to protect against excessive losses if market conditions do not permit. Besides that, you can also determine the take profit to lock in profits.
Another mistake of novice traders is overtrading, aka excessive trading activity and inaccuracy in trading decision-making. Both can cause high transaction costs.
Not only that, excessive trading activity and inaccuracies in trading decision-making also have the potential to cause more significant losses and make it easier for traders to know the performance of their portfolios.
There are ways to avoid overtrading and manage trading frequency wisely, including carefully and clearly defining a trading plan that includes strategies, entry and exit rules, and risk management.
This structured plan will ultimately prevent traders from making emotional decisions and overtrading. Then, set the maximum number of trades in a certain time frame.
7. Not Carrying Out Close Market Monitoring
Another mistake is when traders need to carry out careful monitoring of the market. Regular monitoring of the crypto market is important to identify trading opportunities better and manage risks.
In this regard, several sources of information and tools can be used to effectively monitor the crypto market, including trading platforms and exchanges where crypto trades are made.
Other sources can also be crypto news sites that provide the latest crypto market and industry updates. Furthermore, traders can also monitor information from social media and crypto community discussion forums.
8. FOMO (Fear of Missing Out)
The next error is FOMO, or the abbreviation of Fear of Missing Out. FOMO itself is a term that describes the fear of losing opportunities that look promising, including in terms of trading crypto.
The impact of this fear of missing out, aka FOMO, is that traders will make investment decisions based solely on emotion and hype. That is, traders will ignore the analysis and strategies they have.
To control FOMO and make analysis-based trading decisions, the way to go is to focus more on in-depth analysis and understand crypto asset fundamentals.
In conclusion, there are several mistakes that beginners often make in crypto trading, including:
- A need for understanding the crypto market.
- Not making the right trading plan.
- Decisions are based on emotion.
The next mistakes are traders (4) ignoring fundamental and technical analysis, (5) needing to understand the risks involved, (6) overtrading, (7) not doing careful market monitoring, and (8) FOMO (Fear of Missing Out).
Learning from mistakes and continuing to improve knowledge and skills in crypto trading is very important because That can help traders avoid the same mistake.
Also, traders will be able to improve their skills and knowledge, adapt to market changes, develop better strategies, and overcome uncontrollable emotions in trading.
The method is very easy. You can read various articles and learn about crypto trading only at INDODAX Academy.