Cryptocurrencies form one of the world’s largest financial markets. A couple of years ago, there were already close to 14 million traders all over the globe. It may come as surprising – most of them fail.
It is well known that the crypto market has a highly dynamic nature that could bring you substantial gains today but equally substantial losses tomorrow. This is why traders need to constantly check their information and be up to date all the time to stay afloat. In this review, we will look at the top five reasons for the majority of traders to fail.
Follow our lead, and we’ll make sure you will end up in the 10% of those who succeed.
1. Emotional Decision-Making
Panic sales haven’t done well to anyone yet. This is why it is essential to stay calm and approach the price swings rationally. Manipulations on the crypto market have touched the nerves of both experienced traders and beginners. However, how you deal with stress will show where you end up – in the top 10% of those who win, or in 90% of those who lose.
Some of the best traders developed an amazing strategy to mitigate emotional decision-making mistakes. For example, when day trading Bitcoin, they use a trading bot. The algorithm will not allow you to deviate from the best strategy because of the heavy emotions and will save you from some basic mistakes in calculations of gains or losses.
The day trading bot will also not allow you to sell at the bottom and buy at the top. Remember, a loss is not a loss until you sell it. It is not unusual for a coin to rise in price again in a matter of days or even hours, making a seller lose. Trying to recover your positions by buying again at the top is not the solution – you will lose again. The best way to avoid this cycle of emotional sales is to make every decision with a cold calculation.
2. Ignoring Market Research
There are more than 1000 coins in the world today, and you have to know them well before making a real investment. However, they fall into the scam of rushed or emotional decisions while they forget to double-check their sources and validate all the information. Don’t forget: there’s one thing that is constant at the crypto market – it changes at the flip of a coin.
Do your best to cover all the possible sources of information: read the daily news and double-check its credibility, visit company websites, follow social media accounts of experts and influencers, know the trends, and lastly – listen to your gut.
3. Lack of Portfolio Diversification
We all have heard – do not put all your eggs in one basket. This simple rule can save you a lot of trouble. So, make sure to minimize your exposure to risk and mix a variety of different investment strategies.
We can definitely recommend investments in multiple industries: everything from medical, finance, supply chain, technology, and innovation earns very high profits this year. Moreover, do not neglect geographical diversification, incorporating as many regions in your portfolio as possible. Finally, create investments in a range of various coins, use different platforms, and leave some cash for a shooting star.
4. Neglecting Technical Analysis
While listening to one’s gut is surely a valuable strategy for successful traders, mark our word – they all do not neglect the old good technical analysis. Getting straight your patterns of price movements and indicators is the basis for a good trade. You could begin by looking at the difference between resistance and support and how those two can be used for the entry or exit points.
Our tip for the experienced traders – use advanced technical analysis tools, such as OHLC charts, Simple Moving Average, Bollinger Bands, and Moving Average Convergence Divergence. Those will help you to move quicker in sales and make larger profits.
5. Using Too Much Leverage
The wisdom says leverage cuts both ways. On the one side, we have professional traders gaining insane profits from leverage, on the other – the beginners piling up the debts from losing trades. How does leverage work, and why should it be approached carefully?
Leverage is a temporary loan that you can take to open a trade. Its advantages are clear: you get a chance to participate in a larger deal using a smaller amount of invested capital.
Relying on leverage too much, though, is dangerous. It comes with an exceptionally high degree of risk because of its capacity to significantly augment both your gains and your losses.
To make it short, if the trade fails, your loss will be much greater with the leverage than without. Precisely for this reason, we only recommend using leverage if you have been consistent in profits for over one year. Some other tips from our team – risk no more than 1-2% of your capital on each deal, at maximum.
6. Not Employing Enough Security
The easiest way to lose money while dealing with cryptocurrency is by not using the best possible security measures to safeguard your earnings. Make no mistake, the Internet is not a safe space. Cryptocurrency hacking is a very real thing, and you need to do everything you can to prevent it from happening.
Invest in a digital ledger protected not only with pins and passwords but also biometrics and two-factor authorization. You cannot afford carelessness. Do not let your passwords lying around on the Internet.
Remember, you’re playing to win, so play it safe. Protect yourself the best you can.
The secret to a profitable trading strategy lies in the ability to strike a balance between being well informed, conducting a thorough technical analysis, and listening to your intuition. We are sure that after reading through these five reasons why 90% of traders fail, you will make better trading decisions that will help you succeed.