Here are some of the common mistakes you should avoid when trading crypto;
1. Trading Strategy
The number one mistake in crypto trading is going in without a well-defined plan. You need to know whether you will play the long game or the short game before starting any trade.
For the long term, buying and holding are as profitable as day trading. Hodlers apply a strategy called ‘dollar cost averaging’ where they purchase cryptocurrency at regular intervals regardless of its current price. Dollar-cost averaging is a more profitable investment strategy in the long term. This is because there is no knowing for sure where the bottom of a dip is, and it’s unlikely you’ll buy the bottom of the dip every time over and over.
2. Exit Strategy
You need a solid exit strategy as much as you need a trading strategy. You can withdraw your profits all at once or over time if you need to change your gains into fiat.
Withdrawing all at once can lead to Fear of Missing out (FOMO) once prices increase. This can cause you to go back in after cashing out all at once.
Take profits at fixed intervals where you use profits in dollars or percentages to benchmark.
3. Market Depth
Not paying enough attention to order book depth is another common mistake made by traders. This is mostly because most crypto traders don’t know what it is, how to check it and why it is important in trading.
If you click in depth tab of a trading terminal on an exchange, you’ll see the order book for that trading pair. This is a representation of the buy and sells orders for that cryptocurrency pair on that exchange.
A chart where the buying wave is larger than the selling wave suggests not much demand for the traded cryptocurrency. Sell walls mark a price where a lot of traders will be selling.
A depth chart where the buy order wave is significantly larger than the sell order wave usually means there is a lot of demand for that cryptocurrency logically; the steps you see in the buying wave are called buy walls. These tend to mark zones of support because many people have set orders to buy in when the price dips to that level. Sometimes the strong support you see in the depth charts doesn’t perfectly match what you see on the price chart, which could mess up your plan to buy the dip.
If the depth charts are a bit too arbitrary or chaotic, you can use the markets tab on CoinGecko to see the order book depth for the cryptocurrency you are craving.
4. Trading Volume
Traders quite overlook the trading volume. A cryptocurrency should have ample trading volume relative to its market cap, and that trading volume should be high on more than one exchange. This is true for up-and-coming ERC 20 tokens, which trade exclusively on decentralized exchanges like Uniswap.
The general rule of thumb: If you see a cryptocurrency trading primarily on a decentralized exchange, be sure to give it some extra due diligence during your research. Also, be on the lookout for any ridiculous trading volumes taking place on lesser-known exchanges.
Fake volumes can sometimes inflate the trading volume reported by CoinMarketCap and CoinGecko.
5. Circulating supply
Circulating supply can easily be checked in CoinMarketCap. It is important because a low circulating supply relative to the total or maximum supply means there could be a risk you’ll get dumped on by early investors or the team behind the project. This is why it is important to check the vesting schedules for coins or tokens allocated to the team, early investors, advisors, and any other parties that could start selling. Vesting schedules are found in a project’s white paper, documentation, or their Initial Coin Offering (ICO) details on ICO drops.
6. Market Cap
The larger the market cap of crypto, the more money it will take to push the price up.
If you want to pull a quick 10x, it’s better to look for lesser-known Altcoins. Altcoins on the 5th or 6th pages of CoinMarketCap or CoinGecko tend to have very low market caps meaning it takes less capital to push up their prices. This also means that it takes less capital to push it down.
7. Fundamentals
Don’t be one of those traders who invest in a project and expect its price to go up for no apparent reason.
Expectations are the number one killer of crypto gains. The expectation any trader is common with is when the price of crypto starts to skyrocket. This can push one to open a leverage position with no stop loss and leverage of 100x, leading to rekt.
Leveraged tokens have limited downside risk and don’t tempt you to crank up leverage that risks your capital.
Unrealistic expectations come from other people, especially through the news. It is easy to believe any kind of news especially if it is pushed by famous personalities. Always do your homework because not everything you see on the news is true.
