6 Crypto Trading Mistakes To Avoid
Becoming a better trader is no easy feat. Whether you are trading stocks, FX, bitcoin, or degen altcoins, it is difficult to become consistently profitable over time. With that said, cutting out common crypto trading mistakes can help improve your bottom line.
Here are 6 crypto trading mistakes that you should try to avoid if possible.
Mistake #1: Day trading
Becoming a “day trader” is very tempting to some people. A day trader is someone who closes out their positions each day so that they are not in a trade overnight. The thought of being able to wake up, look at the charts and then make X amount of trading income each day is very enticing.
But there are some things that can make day trading extremely challenging for most people:
- If you have a full-time job or business that requires your daily attention, day trading crypto is not for you. You don’t have the time.
- Day traders must spend a lot more time “in the zone” than longer-term traders and investors. Therefore, they have a higher chance of burnout. Longer-term traders can ignore short-term price action and only “check-in” on the 4-hour or 1-day candle closes, for example.
- Day traders have more chance of getting stopped out. Because the smaller time frames have smaller price ranges, day traders must set tighter stop losses. And if you are trading altcoins on short-term time frames, you are usually asking for trouble. Large moves can happen anytime!
- Each trade costs you money. The more you trade, the higher your trading fees, and the higher your gains must be for you to become profitable.
- You are competing with robots that don’t get fatigued or stressed. The shorter-term time frames are dominated by algorithms that don’t make the same emotional mistakes as humans.
While there are some people who are very successful short-term traders, they will have a high degree of skill and the ability to be on their “A-game” all the time. Day trading is also their full-time job.
Mistake #2: Setting stop losses too tight
Getting stopped out of a trade is frustrating. While setting a tight stop loss can be good for managing risk, it usually leads to far more failed trades. Many traders set their stop losses extremely close to their entry prices so that they can take larger positions for the same amount of risk. These trades have far less likelihood of success.
In fact, many professional traders don’t use stop losses at all. Or, they set much wider “emergency stop losses” just in case. Why would anyone do this? Surely, this is extremely risky?
Not necessarily. Anyone who has traded crypto before knows about the nasty stop hunts and “price wicks” that are designed for one reason: to get you off the bus before carrying on without you. For this reason, it can be much easier using candle closing prices as a reason to exit a trade, rather than setting a hard stop loss.
Of course, different traders use different time frames. For longer-term traders, daily closing prices are usually good enough.
Mistake #3: Taking massive positions
This point is directly related to point 2 above. If you are using the risk per trade method of position sizing, it is tempting to take large positions with very tight stop-losses. Sometimes, this results in highly leveraged trades.
Don’t fall into this trap. It’s a losing battle.
A far more sustainable way to trade is to use smaller position sizes with wider stop-losses. You may not make life-changing money on your big wins, but you will cut your losses big time.
Crypto trading is a marathon, not a sprint!
Also bear in mind that trading costs are based on the size of your position. Larger positions mean higher costs. These fees can compound the pain of a string of losing trades.
And try not to use leverage. It only works until it doesn’t. And when it doesn’t work, it’s a real problem.
Mistake #4: Going all in at once
Dollar-cost averaging is an effective system for long-term investing. This is because your investment risk is greatly reduced if you invest small sums often rather than a large sum all at once.
With shorter-term trading, there is also some merit to “scaling” into trades over more than one order.
Say you have a $1,000 limit per trade. It may be better to trade half that amount at first. Then, if the trade goes your way, you can decide whether to increase your position size to the full $1,000.
Mistake #5: Going all out at once
Scaling out of trades can help you manage risk while letting your winners run. Sometimes, it’s better to take profits bit by bit than all at once. This is because good trades can sometimes run much further than we anticipate, so it’s often a lot better ride the trend.
This is especially true in crypto. Look at the Solana chart, for example…
In trading, it’s nice to have few big winners from time to time to make up for several small losses.
Mistake #6: “Doubling down” on losing trades
When a crypto trade is not going your way, it is tempting to “double down” and increase your position size as the price gets dangerously close to your stop loss. But hopefully, you chose that stop loss for a reason. If the price is getting too close to your stop loss, increasing your position increases your risk.
In my experience, I have found it more favourable to increase position sizes after a trade has become profitable and the trend has been established. For example, adding to a bitcoin long trade after it has retraced to the 21-day exponential moving average.
There are many ways to make money in the crypto markets. But there are far more ways to lose money. By keeping your crypto trading mistakes to a minimum, you stand a much better chance of being successful over time.
Another option is to invest long-term, rather than trade. For most people, this is usually the best course of action.
The usual disclaimer: This is not investment advice. It is just for information and education.