In general, traders can be divided into two broad categories. Some of them do not want to understand the basics of trading and do not even want to listen to those who do. They act purely intuitively and treat crypto trading like gambling. Therefore, they constantly make crypto trading mistakes and often do not even notice them, seeing only losses.
Others are deeply interested overall in trading and crypto trading in particular, constantly studying everything related to it, and know how to avoid crypto trading mistakes to succeed. This is why we are taking an educational stance in the crypto industry, offering top crypto trading mistakes to avoid.
Of course, this is not an exhaustive list, as each type of trading can have its own best practices that significantly increase the chances of success and rude mistakes that guarantee losses unless you are unlucky.
However, there are some universal mistakes in all crypto trading, which you should make a habit of avoiding.
Ignoring the Basics of Economics and Trading
First, you need to realize that even though the crypto economy is significantly different from the fiat economy, it is still an economy. This means that many fundamental economic laws apply to it too. You may not need a PhD in economics to be a trader, but you should definitely have a thorough understanding of money and economics as a phenomenon, how they have developed throughout history, what new economic models and tools have emerged, and so on.
For example, we have a situation where the FED does not lower the interest rate through 2024. Yes, the interest rate is part of the fiat financial system and it does not apply to Bitcoin and other cryptocurrencies. However, it does affect the reserve currency and the central economy of the world, the US dollar and the US economy respectively, and this, by several indirect factors, affects the price of Bitcoin.
But to understand how it affects, you need to understand what the interest rate is, where it comes from, how it has affected the economy before, and what assets have become more or less expensive relative to the reserve currency in this context. While the fiat economy is not a thing of the past, it influences the crypto economy, so not understanding it will be the first of the trading mistakes to avoid.
Neglecting Fundamental Analysis
One of the next important crypto trading mistakes to avoid is related to the first one, and again boils down to the unwillingness to address fundamentals, building a more comprehensive and complete picture of certain assets, markets, etc.
Fundamental analysis differs from technical one because it takes into account additional internal factors in the pricing of an asset, which can be very important for a confident position and long-term outlook. These factors include the jurisdiction and regulations to which the company issuing the asset is subject, its board of directors and key management, the technology and integrations used, the roadmap and partners, and so on.
Yes, this analysis takes a lot more time and effort, but the good news is that you don’t have to do it every day, even if you like to do everything yourself don’t use services and financial consultants. Most of the positions discovered through fundamental analysis change infrequently, requiring revision on longer timeframes than days, or even weeks.
But of course, as the company evolves, it develops new features, makes more integrations, and other things that you need to monitor and update in your position, but even this does not require you to do all of your fundamental analysis over again.
Unawareness of Your Platform
Another common mistake in any business is the lack of knowledge of the tools, and in our case, this will also be one of the key crypto trading mistakes.
When choosing the most suitable platform for you, you should study all its features and terms to understand clearly your capabilities and limitations there. However, there are excellent solutions for this, including our detailed reviews on a number of crypto platforms like ByBit, BloFin, MEXC, CoinW, and others.
Take a close look at all the technical features and how exactly they work, the terms and conditions the platform has, such as the jurisdictions in which it can operate, the deposit and withdrawal methods with their limitations depending on KYC and other factors, and the commissions the platform charges for different types of trading.
The total of these factors can greatly influence your choice of platform depending on your level, expected trading volume, country of residence, and other things to make your trading the most profitable and sustainable.
Trading Without a Long-term Strategy
Now that you have familiarized yourself with the basics of economics and trading, the leading crypto trading platforms, and conducted a fundamental analysis to determine whether certain assets deserve to be in your portfolio – you can move on to the question of how to avoid crypto trading mistakes during the time.
And the first will be not to trade without a long-term strategy. Even though the crypto industry as rather young can give super profits, it does not mean that you can act randomly or consider everything in the short term. Even if you do not want to make trading your main specialization, but want to be confident and have constant success in this activity – you need a solid long-term strategy for your trading.
It should take into account such factors as a realistic balance of what profits you want to achieve with what time and money you are willing to devote to it, and also take into account possible risks associated with unsuccessful trading due to your own decisions or external unpredictable factors.
If you are new to trading, and you just want to feel how to be in this role to understand whether it is interesting for you to spend your time on it, then, of course, you can allocate a small amount of money that you will not be afraid to lose. Maybe you won’t be interested in it and you will just check it out. But if you feel good that your analysis and decisions based on it are profitable for you, and then you decide to devote yourself more to it – you can’t do without a long-term strategy that takes into account all your real goals, capabilities, and risks.
Also, always use trusted sources and experts who, although not giving you direct financial advice, are genuinely willing to share their expertise, which can greatly reduce the time and “cost” of acquiring it yourself.
Neglecting Percentage-Based Tracking and Journaling
The next mistake stems somewhat from the previous one, which is neglecting the use of percentage-based tracking and journaling. At first, when you are just learning to build your strategy on just a couple of assets using only one platform, the additional math and its journaling may seem redundant and more time-consuming than the trading itself.
But keep in mind that good things are never made quickly, and it pays to make them your habit initially. Especially considering that at the moment when they become necessary, it will be much more difficult for you to implement them. It is easier to learn how to build a strategy and keep a journal on the example of a couple of assets, rather than a couple of dozens of assets on a few crypto platforms.
Therefore, from the very beginning, learn to convert your investments and your profits from trading into percentages, and record it all the time. This will serve as an excellent source on which you can precisely evaluate the success of your strategy and the improvement of your competence in trading.
Using All Your Resources on Single Trade
A fairly common mistake that some even experienced traders make is to get emotional when they see an attractive trade with a high potential profit and put all their resources into it. This approach turns trading into gambling, which it absolutely is not, and reminds you of it in the form of losses if you act in this way.
Trading is about careful analysis and cold thinking, as well as constant risk diversification, which you can read more about here. The more accurate your analysis, devoid of any sentiments, and properly allocated resources for the order, taking into account the possibility of its failure – the higher your chances of success.
In other words, the more professional you approach trading, the more it rewards you, and vice versa, the more baseless and careless you do it, the more costly lessons it teaches.
Disregarding Risk/Reward Ratio
While the previous point cautions against being inaccurate in any way – even the most smart trading is based on estimating probabilities and making decisions based on them. This means that there is always some room for inaccuracy in estimation, which gives rise to some risk that the decision will turn out to be wrong. And this requires the right attitude too, namely an adequate risk/benefit ratio.
Of course, it is all very individual, but for example, you can afford to lose $100 if you are wrong in your prediction, but gain $300 if your analysis is accurate enough and justified itself. The 1/3 ratio on these amounts can be quite moderate, but the 1/3 ratio on the amounts of $1000 and $3000 is not quite, even if you can afford to lose $1000 because you can achieve $3000 without risking so much within one trade.
Jumping Into Margin Trading Too Early
Margin trading is also a very attractive feature when you do not have much money at your disposal, but are confident in your analysis and high profitability of the trade. Then you can use not only your funds for the trade but find yourself in a mutually beneficial situation with a very good profit with minimal investment.
Therefore, it is an excellent tool for experienced traders, whose strategy is already well-tested and whose confidence in their decisions is reasonably high, as well as if they have the resources to cover an unsuccessful trade if in this case their analysis did not take into account certain factors and was not accurate enough.
But if a newcomer enters margin trading without all the above just because their resources are limited and they want to make a big deal – with high probability it is a way to failure.
Such tools are extremely profitable, but they are quite advanced and demanding for the one who is going to use them, and ignoring this is a very careless attitude toward trading.
Not Gaining Experience Out of Losses
As you have already realized, avoiding the above-described mistakes multiplies the risks and losses from trading, even so, the market remains very large and complex, and the factors influencing its dynamics are too many to ever make mistakes. Therefore, even professional traders can make them, but what distinguishes them from non-professionals is that they constantly ask themselves the question that is the focus of our attention here, namely how to avoid crypto trading mistakes.
Treating a mistake solely as a loss, without analyzing its causes, and taking measures to avoid it in the future is a direct way to make them again and again. Instead, you should deeply analyze each mistake and learn to make better decisions based on it, constantly improving your strategy and making your analysis more accurate.
It is worth treating this in a way that is no different from a paid professional course or certificate, which contains valuable information and therefore simply cannot be free. Similarly , in between your successes as a justified analysis of a situation expressed in the form of profit to your account – you pay for unjustified analysis and get valuable information on how to make it better.
Forgetting About Taxes
It’s pretty obvious here, but only at first glance. You always have to pay taxes and comply with the tax laws of your country, even if the domain of your earnings is relatively new and the assets you work with are still adapting to our world.
On the other hand, the regulation of cryptocurrency activity is not clearly established, and your country may be in active discussions about it, introducing new regulations and relevant legislation any day, as you can find out in our breaking news.
However, the final word remains with the specific jurisdiction and its regulations, you are obliged to comply with its law. That means finding out how certain types of crypto trading are currently regulated and what taxes they are subject to, up to the point of writing an official letter to the tax office every month to clarify the status of the current legislation.
Conclusions
Now you are familiar with top trading mistakes to avoid, and how avoiding them helps you.
Maybe you choose crypto trading as your side activity, so avoiding them will help to reduce the “cost” of gaining invaluable investment experience to develop a strategy that will give you more and more financial freedom and security.
Or you choose to make crypto trading your full-time job, so avoiding crypto trading mistakes helps you to become a real professional in it and makes it your main income.
Anyway, remember that crypto trading requires constant learning, to be informed and profound in your designs.
