Day trading cryptocurrencies may lead to enormous profits but, if you don’t know what you’re doing, then it can lead to gigantic losses instead.
Let us first understand what exactly day trading cryptocurrencies mean?
The word trading, in general, refers to buying and selling of an asset with the aim of making a profit. Anything can be traded but the objective is always going to the same. Day trading refers to a very short- term trading period, it can mean holding the assets for just a few seconds, to a couple of hours. The idea is that one needs to sell your assets before the end of the day, hoping to make a small yet quick profit.
Bitcoin – The king of cryptocurrencies!
Today, Bitcoin is the most important and famed investment vehicles around, who are competing and often winning against its competitors. Bitcoin is mined and there will only be 21 million Bitcoins ever! Yes, you heard that right. The supply of Bitcoins is limited. Currently, Bitcoin’s market capital crosses $138 billion and this is the most popular kind of cryptocurrency.
On the 12th of April, 2018, Bitcoin’s price jumped over 10% in a minute. If someone had pre planned or worked out the whole strategy properly then his/her position’s value must have increased by almost 10% in a single trade. On the contrary, if someone was in the dark and did not care about its investments or did not make a strategy, then this could prove to be a massive downfall in one minute.
We’ve often heard the phrase: “90% of traders lose money, only 10% win.” In fact, it is estimated that 96% of traders lose money and end up quitting. This figure leaves us with only 4% who prove to be profitable traders and avoid treacherous mistakes while Crypto day trading.
Without wasting more time, let us now discuss the mistakes which you all make while Crypto day trading, and increase that 4% of profitable trader’s day by day:
Trading out of emotions
Digital currencies have soared in value and its fame in the past few years, but their journey is not the same. The cryptocurrency is known for its volatility and unexplainable price movement. Sometimes the investors invest due to their fear, uncertainty, and doubt on losing out the best one.
When one trades based on their emotions rather than on trend analysis, then there are chances of losing their money in a shorter period of time. Sometimes the FOMO (fear of missing out) often indulges the investors to make hasty decisions, something that only exacerbates volatility and makes the investors personally liable for the price movements. Emotions should not play a vital role while taking investment decisions, even while developing investment strategies.
Misjudge technological power
Crypto day traders may misjudge the advanced technological capabilities. Not all cryptocurrency products were developed keeping the day trading in mind, and some can instead limit the capacity to day trade efficiently. Day traders need to find the technology that is going to work the best for them like –
- Wallets are designed with maximum security, but these aren’t meant to be used by a day trader because it is time-consuming and delays the trades.
- Day traders should opt for software solutions that improve the trading experience to accommodate burgeoning needs.
Trading too often?
In the early days of trading, one might be eager to finish as many trades as possible because of course, the higher the number of transactions, the higher the probability to earn profits. However, this is the most common myth in the trading industry.
To become a profitable trader, you need not conduct many transactions with meager profits, instead, limited transactions with a constant and healthy return will establish you as a leader. You should never set a target for a fixed number of trades per day, as this can lead you to take not so optimal decisions and some unnecessary risks.
Going against the trading trend
Although more advanced traders can make profits while not following the general trend of an asset, beginners will often have a hard time doing the same. When almost the entire cryptocurrencies market is witnessing a downtrend, this reduces the profitable trade opportunities. Until you are totally aware of the trend, its effects on the price and can recognize the opportunities between peaks, it is best to align on the side of awareness.
Make sure to keep a check on sites like www.is-scam.com to ensure you are not missing out on anything important.
Using terrible Risk-to-Reward Ratios
The most important aspect of trading is a proper risk-to-reward ratio. Beginner investors often tend to think that the only way to earn profit by day trading is to have more winning trades than losing ones. However, it is still quite possible to lose on a number of transactions and still sail with profits in your boat.
Let’s take an example to understand this:
Having a 90% winning strategy with a poor risk-reward ratio can actually make you lose all your money, while a 40% winning strategy with a 3:1 risk-reward ratio can generate a healthy profit.
Thus, pick good risk-to-reward ratios even over winning strategies.
Using Stop Losses that are too tight
The most valuable tool used by a day trader is the stop-loss feature which can protect you against a heavy loss under the right circumstances. Many new traders make this huge mistake of placing their stop-loss too close to the initial buying price of an asset. Bitcoin and cryptocurrencies are highly volatile, which can lead to a close stop loss to activate before the price has had a chance to climb. It might seem like you just got saved from incurring a huge loss when in reality it is an opportunity that you missed by a very close margin.
Final word
I hope that now you know where you were making mistakes while crypto day trading. Just make sure you never invest more than you can afford to lose and that you never chase your losses. You should be careful about determining your cryptocurrency investment and the strategy you make. Even though losses are never a good thing, but in case you experience them in your early days of crypto trading, consider them a learning.
Believe me, there’s no fun in trading without a few losses!
Cryptocurrencies serve excellent opportunities for day trade investors. They just need to avoid the mistakes and work more strategically and smartly.
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