Despite being one of the most profitable industries of all time, budding cryptocurrency traders often lose money when they first enter the market. Depending on the platform used, it is estimated that up to 95% of new cryptocurrency traders lose money—mostly due to mistakes that could easily be avoided with the right knowledge and preparation.
If you find yourself in this position or are planning to begin trading cryptocurrency soon, here’s what you need to know before opening your next trade.
Kick Emotions and Excuses to the Curb
“Ultimately, consistent profitability comes down to choosing between the discomforts you feel when you follow your plan and the urge to let yourself be captures (and ruled) by your emotions,” said Yvan Byeajee in his book ‘The essence of trading psychology in one skill’.
Though this quote was aimed at traders of traditional markets like forex, equities, and their derivatives, it also holds true for cryptocurrency investors, who frequently use their emotions as the basis of their decision-making, rather than the cold, hard facts. Unfortunately, this strategy (or lack of) rarely pays off in the long-run, and is one of the main reasons why less experienced cryptocurrency traders can end up in the red.
While it is true that many cryptocurrency market movements are driven by sudden changes in investor sentiment, and that these changes can often be predicted well in advance (in some cases), many traders often get caught by the same sentimental bullet and develop illogical attachments to the assets they trade. This can cause investors to hold on to assets that have no realistic chance of seeing a recovery, which both locks up their capital, and potentially leads to a spiral where they refuse to take their losses early and wind up losing far more than they needed to.
Avoid cliff-edge drops like this by setting a stop loss. (Image: CoinGecko)
Frequently, inexperienced investors will switch to a ‘long-term hold’ mentality to justify holding through adverse price action—shifting the intention of their investment to that of a long-term play to make the losses more bearable. While this may work out in some cases, it’s important to have an initial strategy in mind, and then stick to it. This doesn’t mean investors should sell out on the first red candle, but they should definitely keep a stop loss in place to protect against a catastrophic cliff-edge drop.
When in Doubt, Demo Trade
The vast majority of new cryptocurrency traders have little to no experience with trading, and most have no sense of market structure, useful indicators, or technical analysis. As a result, many new traders simply dive into the market, using just their wits, logic, and intuition to make decisions, even though these are honed by experience and market knowledge.
Fortunately, a number of platforms now offer demo trading solutions that allow cryptocurrency traders to speculate on the market without risking any money. Instead, these platforms allow these users to trade using play money or testnet funds, on markets that mirror real ones. By using demo trading accounts, inexperienced cryptocurrency traders can get a feel of the market, perform their own technical analyses, and grow their demo portfolio to see how their strategies would fare on the real market.
NewsCrypto is commonly known for its trading education platform, but recently launched its own free demo trading solution. (Image: NewsCrypto)
To help set cryptocurrency traders on the right path, NewsCrypto — a popular crypto trading education and market insights platform — recently released its own demo trading solution. Unlike other demo and paper trading tools, NewsCrypto’s demo trading platform is designed with the absolute beginners in mind, and provides easy-to-access features, charts, and demo markets for new traders to get to grips with quickly.
Once a trader can comfortably turn a profit on demo markets, it’s then time to jump into the real thing, while making use of stop-loss, take-profit, and limit orders to control risk exposure where possible.
Separate Truth From the Hype
As a new trader, it can often by difficult to separate the genuinely promising investment opportunities from those that have been hyped up by paid shills and those with a vested interested in seeing them succeed. Unfortunately, this can lead novice traders to invest in the myriad pump and dump schemes floating around, or in projects that will experience little more than a perpetual downtrend.
Bitcoin search interest in the last 90 days (Image: Google)
To overcome this issue, traders need access to accurate, non-biased market insights and analytics, and need a way to check which projects have genuine hype, and which are duds. Luckily, there are literally dozens of tools and platforms available to help spot promising opportunities and avoid risky options. One of these, is Google trends, a site that lets you check the search activity of any term you want to see if it is genuinely popular or not.
Likewise, the Crypto Fear & Greed Index from alternative.me can be used to gauge whether the market is overall bullish or bearish, while Shuffleup’svolatility tracker can be used to check the normal volatility range for various cryptocurrencies. These tools, in combination with the numerous others available can be used to make more profitable trade decisions, and avoid most risky assets.