Top 15 mistakes and solutions in trading

17 ก.พ. 2023

TOP 15 Trader's Mistakes

1 - Lack of knowledge of market operation, technical and fundamental analysis, mass psychology and market cycles

In the boom period, when a large number of new participants enter the market, many people believe themselves to be the "god of trading" and the "master of the markets."

Beginners are satisfied with a 10-20% profit during the expansion phase, whereas quotes for liquid cryptocurrencies show a gain of 30/50/150%. Everything is contrary to the logic of the majority, which is how markets function. Sadly or luckily, the majority of individuals make common errors and are unable, due to a lack of understanding, to differentiate the fine line when an uptrend is replaced by a downturn and the distribution phase is replaced by a prolonged decline.

At the moment of trend reversal, a psychological trap and a sequence of catastrophic events are established for the majority of participants, and a number of concomitant circumstances and lack of experience make it impossible to see the situation objectively.

When the market is at its "bottom," the majority loses faith in growth: some sell out and abandon the market, while others wait even lower, do not purchase, and begin shopping only when everything has increased by hundreds of percent.

Solution

Study theory. Dow Jones theory, the fundamentals of technical and fundamental analysis, and any information regarding market cycles will be of great use. Examining the graph using large timescales, such as days, weeks, and months. You may find a wealth of material about the fundamentals of trading in the public domain or in the trading part of our website.

2 - Covetousness resembles a psychological trap

Trading greed presents itself in numerous ways. Many are attracted to the cryptocurrency market by the idea of quick money, but the majority's problem is a lack of understanding of the mechanisms that move the market and how it functions.

In order to arouse greed, pampas are constructed with a single "stick to the sky." Everyone sees a growth of 1000%, and as a result, earnings of 20/40/50 and even 200% no longer appear so promising, people do not sell, they are waiting for more, and the price falls into the red.

Purchasing a full deposit's worth of cryptocurrencies in a single transaction is also greedy. The typical justification for such a "tactic" is that 10% of the overall deposit is greater than 10% of the portion of the deposit. Yet, when the price declines, the trader incurs losses and cannot cut the average entry price at lower values.

Another example is missed opportunity syndrome, or FOMO. The price of the item has climbed by an inadequate amount over the course of one or more candles. Seeing this process, a novice decides to purchase the asset because he believes the price will continue to rise, resulting in losses.

Many make the mistake of wanting to gain a lot of money quickly, but this is impossible. Fear and greed are particularly harmful emotions for traders.

Solution

The market requires a sensible strategy. Greed stems from inexperience and the fear of being late. Refrain from making decisions based on emotions and haste. It is essential to recognize that chances arise and disappear regularly on the market. Before initiating a trade, you should assess and justify your motives for doing so.

3 - Trading in emotional instability and excitement

Any emotion in trading is detrimental. The decision to enter or exit a transaction must be calculated beforehand, devoid of emotion and haste. Emotions make it difficult to appraise the situation accurately, and you run the danger of making a mistake that may result in losses.

Yet, since emotions are innate, it is impossible to eradicate them entirely; however, they can be managed. If emotions prevail, it is time to close the trading terminal and go on to other tasks.

If you wake up at night to check bitcoin prices or are unable to fall asleep, this indicates that you have already made key errors in your risk management system, or that you do not have one. And this requires immediate action and, as much as possible, a "cool" head.

Solution

Take a break from the trading terminal, spend time with loved ones, or go for a stroll; you need emotional relief and rest from time to time. Sports are effective stress reducers. If you have already reached the point of insomnia and emotional breakdowns, you must conduct a thorough analysis of your risk management strategy and take sometimes difficult measures.

If you have executed a number of unproductive transactions or one with an insufficient loss and you have the impression of "winning back," close the trading terminal immediately and do not trade on this day. Do not treat trading as a game of chance; in this emotional condition, you have no chance of success.

4 - leveraged trading

Margin instruments can be effective in the hands of a competent trader, though not always and only under certain conditions. This is simply an unmanageable machine for liquidating a deposit in the hands of a novice. Futures and margin are verboten for rookie traders, since you face the risk of not having time to develop experience, but losing your deposit instantly.

The average daily volatility of liquid instruments in a sideways movement can reach 3 to 10%, which indicates that squeezes may exceed adequacy when utilizing the 10th leverage - movements by 30 to 100% - on low-liquid pairs. When utilizing such leverage, setting a stop-loss is already problematic, as a stop-loss that is too far away would result in enormous losses in the event that it is triggered, and in nine out of ten situations it will be eliminated by an acceptable percentage. In addition, you will pay a commission for financing, taking into account leverage and transaction commissions.

Exchanges will gladly offer you with as much leverage as you like, but this is no longer trading; with this strategy, you have a greater chance of winning money at a casino.

Solution

Study the fundamentals of trading, master numerous techniques, develop your own trading strategy, and gain real-world trading experience on the spot market by physically purchasing and selling various assets. You will eventually comprehend how the market operates. Under certain circumstances, success on the spot market can be enhanced with margin.

5 - Uselessness of stops

Stops in trading are a substantial issue; stop-loss orders are covered in a different article. Stop-loss orders are frequently used irrationally or ignored by novice traders.

Traders can be roughly divided into two groups: those who always use stops and those who prefer to operate without them. However, these are extremes. A stop positioned too closely is liable to be obliterated, while the absence of a stop under certain conditions can result in enormous losses.

It is irrational to use stops during the accumulation phase because, in about eight out of ten instances, stops are eliminated precisely at those levels when there is a substantial accumulation of them, following which the price reverses and moves in the opposite direction. And when a significant upswing is established after a period of accumulation, a knockout almost always comes; it would be a shame to watch the price rise without participating. Yet there is a tight line here; you must be certain for a large percentage that this is the accumulation period, and you need also have a plan for price averaging, i.e. fiat in reserve.

It is irrational to work in the distribution phase without stopping, just as it is crazy to labor in the accumulation phase with a pause. This is significant because many people lose in these situations due to lack of expertise. Eventually, the distribution is finished and a decline occurs, frequently abruptly and by a substantial percentage. Stopping dramatically minimizes the loss.

If you have already opened a position and the price moves significantly in your favor, it becomes sense to place a stop-loss to safeguard profits so that if the price reverses, you will still make a profit and not a loss.

While dealing with margin instruments, stops are required!

Solution

If you have no trading experience, we recommend that you constantly utilize stops until you understand how they operate. If the fundamentals are understood, they should be applied sensibly to the circumstance. Similarly, if you were stopped out by a stop, you do not need to re-enter the trade, pause trading, identify what went wrong, and then determine the next entry point.

6 - Non-fixing losses incurred when the price moves against you but you do not close your position

If a trader becomes an investor owing to circumstances rather than his own volition, he is a poor trader. The "HODL strategy" is an explanation for a trader's insolvency and their own faults.

Long-term asset freezing is the worst thing that can happen to a trader - "I'll wait out the crypto winter and still sell for a profit" is not a trader's behavior model. It does not matter to a trader what the current trend is; he must have effective strategies for any scenario. Waiting out losses is a waste of resources since there is volatility at every price level, and volatility is an opportunity to make money.

Trading on financial markets necessitates the presence of lost deals; it's just the nature of the business. No trader has 100 percent profitable trades, and this is typical. Profitable trades must cover bad trades, and losses must be contained.

If you are unwilling to recover losses when the price moves against you, you lose control of the situation and become a victim of circumstances.

Solution

Before entering a trade, you should have a contingency plan in place in the event that the price moves against you. In certain circumstances, this may involve deliberate averaging, while in others, it may include fixing losses. Recognize that losing transactions are a normal part of the process.

7 - Transaction concluded too quickly

We touched on this topic briefly at the beginning of the article. The scenario is typical: a trader enters a position and the price begins to move in his favor. The trader takes profit at the predetermined level, but the price continues to rise. In itoge, fixed profit represents a modest proportion of the whole movement. The circumstance is representative of a powerful trend.

It would be a stretch to call this a mistake because the profit is fixed; however, in the case of a trading strategy with a limited number of assets, it can take a very long time to wait for the price to roll back below the exit point, in some cases an entire year, and in other instances, the quote may not return to its previous levels.

Solution

8 - Depending on your trading approach, there are a variety of solutions, including:

The gradual sale of a previously acquired asset at varying prices.
Selling of a portion of the asset to remove the invested funds from the transaction and earn a little return, reserving the remaining position (conditionally free asset) for longer-term objectives.
Profit protection with a stop-loss order and its progressive approach to the quote, but not too close so as not to be eliminated prematurely.
Deviation from the strategy or vice versa - lack of action flexibility

Confusion, agitation, and swinging between extremes are certain indicators of a lack of a trading strategy or an indication that it was constructed wrong. Planned action eliminates the possibility of unanticipated situations and makes risks manageable. The plan must account for both potential profits and losses. Frequent strategy adjustments during the trading process are typically detrimental.

The contrary is also true: a trading strategy must be adaptable to the current market environment. For instance, you are in a position and the price is moving in your favor, everything is going as planned, you are almost at your goals, but then you learn that the project whose coin you are trading was hacked. In such a circumstance, you will have very little time to make a choice. In such a circumstance, blind adherence to the strategy will definitely result in losses.

Solution

Your activities must be automated, and you must have a well-thought-out trading plan that takes into consideration all possible eventualities. In the event of a force majeure, it is vital to make swift decisions and build market-specific flexibility.

9 - "Finding knives."

Investing a major portion of the deposit in the purchase of an asset amid a severe price decline is a bad choice. It is known as "catching knives" in business parlance. No one can accurately predict where the price will stop fluctuating and begin to consolidate. Before making a decision based on a thorough analysis of the situation, it is vital to comprehend the core cause of such a decline.

You cannot make purchases after the upcoming autumn without comprehending the market's overall condition. After distribution at the peaks, the value of altcoins can decrease by 70 to 99 percent. To clarify, an asset in a bear market can lose 50% in a day, 50% in price, another 50% in a day, and another 50% in a day dozens of times before reaching its ultimate bottom. In addition, it is not a certainty that he would recover after this, particularly if it is an illiquid asset, of which there are thousands.

Solution

If you continue to employ this technique in your trading strategy, you should limit your exposure by allocating a smaller portion of your entire deposit and bear in mind that this "bottom" may not be the last one. With this strategy, it is crucial to master the fundamentals of technical analysis and how to construct horizontal levels and trend lines.

10 - Absence of system, algorithm, and subjective opinion

You must know beforehand where you are buying and selling, what portion of your deposit you are working on, the permissible losses, and the rationale for these activities at the same levels. All of this is a trading strategy. In acts, there should be no spontaneity, excessive self-assurance, or hesitancy.

You should not take the subjective opinion of another as the truth. The more confident words and assertions sound, the more confidence they inspire on a psychological level, directly into the subconscious, and you begin to feel that these are your own thoughts.

The bitcoin market is rife with numerous types of manipulation; therefore, every information must be double-checked. The situation is compounded by the fact that newcomers are frequently directed by their own expectations and desires rather than by objective data. For instance, a break in a trend or a breakdown of a horizontal level is objective evidence, whereas an item that is overbought or oversold is merely an opinion.

Solution

Incorporating risk management and financial management into your own trading strategy. Use objective knowledge, not the opinion of others, for analysis. If you consume a great deal of information regarding the crypto sector, you need carefully select your sources and listen to opposing viewpoints on the situation.

11 - Ineffective financial management

Money management should be the default inclusion in your trading plan. This entails splitting both the deposit and the assigned amount to join the asset, as for different trading techniques.

It is not suggested to purchase the entire anticipated quantity of cryptocurrencies in a single transaction, since it will be unable to equalize the entry price in the event of a price decline. Beginners frequently make this error while purchasing something with their entire deposit.

In addition, money management covers the distribution of trading and storage locations for assets. We do not encourage trading on a single exchange; use many exchanges. If your bitcoin is sitting idle on an exchange, withdraw it to a cold wallet or hardware wallet.

Solution

12 - Money management must be an important component of your trading plan

Too slothful to retain records

No professional trader would conduct business without keeping transactional statistics and records. It is impossible to comprehend one's own efficiency without this. Some exchanges provide account analytics at a high level, while others do not; however, all statistics are maintained for a specified time frame. After a while, you will forget the prices at which you acquired your own investment portfolio. It will be unusual to sell an item without knowing if you are making a profit or a loss.

A trading journal will educate you more than a dozen trading books combined. Record the purchase price, date, exchange, reasons for entry, feelings during the transaction, and similar information. After a period of time, you will be able to study and comprehend the causes of past errors and successful transactions.

Solution

13 - Notepad, pen, and a methodical approach.

Overestimated dangers

Regardless of the size of the deposit, restrict the allocated funds for high-risk strategies to a specific amount or percentage. In the event of a loss, continue trading with the current balance without replenishing it. If a profit is made and the balance increases, transfer a portion of the money to less risky methods or withdraw them to fiat.

Elevated risks include x5+ leverage, starting a trade with the full deposit or a substantial portion, entering an asset with a single order without averaging, and trading illiquid assets.

Solution

14 - A methodical approach to risk management.

Do everything and you will fail

There are various methods for constructing working portfolios. Someone trades many specific altcoins, someone trades simply bitcoin, and someone trades circumstances without reference to particular assets; however, success is the most important factor.

The enormous number of active cryptocurrencies is one of the primary obstacles for newbies. To handle the situation, it is required to comprehend a variety of project-related aspects, including fundamental analysis, technical analysis, order book status, transaction history, project-related news, price, etc. It is physically impossible to control more than five assets simultaneously without the assistance of a team of analysts.

By working with many cryptocurrencies, you run the danger of losing focus and overlooking crucial nuances that will effect the outcome.

Solution

Initially, do not trade more than three assets; if you can keep track of a larger number, you may gradually increase the quantity.

15 - Inability to withdraw from the market and await suitable conditions.

Staying out of the market is one of the most difficult aspects of trading for most novices. There are times when the wisest course of action is to monitor the market. It is not true that the more transactions there are, the greater the profit. You can conduct dozens of transactions per day and incur a loss in a month, or you can conduct two or three transactions per month and earn a profit.

It is easier to work during the growth phase, and without theory and experience, it is nearly difficult to earn a profit during the flat and downturn phases. If it were possible to make money during the growing phase, the ideal course of action during the turning point would be to take a vacation or limit the trading portion of the initial deposit in order to get expertise trading with little sums.

The remaining 99% of a trader's time is spent on self-development, market analysis, hunting for opportunities, and waiting for advantageous entry points into trades.

Solution

Utilize the time while you are out of the market to your advantage. Instead of mimicking a monkey's actions, participate in self-education: read foundational literature on trading, discover new trading tactics, and study the assets you're interested in as thoroughly as possible. In this way, at the moment when a beneficial situation occurs on the market, you will be ready for it.

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✅Disclaimer: Please be aware of the risks involved in trading. This idea was made for educational purposes only not for financial Investment Purposes.

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