We are going to take a look at a few mistakes new Bitcoin traders often make when they have real money on the line.
How to Stay in Control as a New Bitcoin Trader
Let’s take a look at common mistakes made by inexperienced traders:
- Entering a trade without a plan in place could get you liquidated.
When you trade Bitcoin you should have a rule set which you stick to, with your entry, stops, and exit planned out. You should stick to this plan, keep a journal of your trades and outcomes, and not deviate from it. Trading plans maximize your ability to make decisions unemotionally and to get out without getting too greedy. They allow you to statistically benefit from probabilities, as you only take trades that meet your predetermined rules for a setup.
FOMO stands for Fear Of Missing Out. FOMO can lead you to make terrible trading decisions. New Bitcoin traders often see trading backward and tend to buy in during a bullish spike in prices, then they lose their money when the trend retraces. Experienced traders buy the dip, when others are fearful, and sell at a much higher price during the bullish spike. Bitcoin markets are 24/7/365, so you can always wait for the right time to place your trade, the market isn’t going anywhere, don’t FOMO.
- Don’t trade using too much leverage, don’t trade what you can’t afford to lose.
Trading is a way that you can make a lot of money in a short period of time, however, you can lose it just as easily. Don’t use too much leverage if you don’t know exactly what you’re doing. Some exchanges offer as much as 100x margin trading, but if you’re undercapitalized, or are trading more than you can afford to lose, you can end up in trouble very, very fast. Your trades shouldn’t be more than 2-5% of your total account/bankroll, and you shouldn’t have more 3x-5x leverage if you’re a new trader.
- Don’t let fear or greed cause you to make bad decisions
If you have overwhelming anxiety or greed about your position, it is a sign that you’re probably trading what you can’t afford to lose, and this amplified emotion could cause you to make spur of the moment irrational decisions. The reason we have a trading plan is so emotions don’t make us react negatively to unexpected price movements. If you’re feeling afraid or too greedy it should be a warning that you’re doing something wrong.
- Watching the market 24/7 will make you stressed out, and it won’t make you any richer.
If you’re constantly glued to the computer screen watching the Bitcoin charts, you’re likely to stress yourself out. Stress is no good for you or those around you. It also doesn’t earn you an extra Satoshi for your troubles, either. Take a walk, get some air, spend time with loved ones, you should be able to relax if you’ve set stops, not used too much leverage, stuck to the trading plan, and aren’t risking what you can’t afford to lose. Trade long term macro price movements, not short term trades where volatility can wipe you out.
- Be Patient. “The stock market is a device for transferring money from the impatient to the patient.” – Warren Buffett
The markets often enter no-trade zones where sideways trending doesn’t offer much opportunity for profitable trades. You can always just sit it out and bide your time for the perfect setup or breakout before taking your next trade. Don’t overtrade, and don’t trade just for the sake of trading during suboptimal market conditions. This could lead to death by a thousand paper cuts scenario where many small, poorly timed trades liquidate your account little by little.
- Trade with the trend, not against it.
Many inexperienced traders fail to realize that when the market is a trend, trading against the trend is extremely risky. Experienced swing traders no how to time their exits and entries to scalp short term profits from price swings, but new traders should not attempt this. Traders should identify if the market is moving up, down or sideways and trade according to the market’s momentum. Fighting the momentum of the market is a sure way to get liquidated.
What are some of your best tips for new Bitcoin traders? Let us know in the comments!
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