TOP 5 Traders Errors Or Why Beginners Merge their Trading Deposit in the First Month

1. Neglecting the “Stop-loss” tool

The very first problem worth to pay close attention to and which is very common not only among beginners is trading without the use of stop loss. Surely many will think: “Yes, we know about stop-loss,” but in fact, the number of people who know about this tool and those who use it is two completely different numbers.

Whatever trading strategy you choose, be sure to use a stop loss, this will protect your funds, which most likely you got with great difficulty. At which mark it should be set - this is a thoroughly individual solution. For example, a stop-loss can be set to a support level that is lower than the current one, possibly even leaving a little space under it.

The most important thing is to use this trading tool on an ongoing basis. For example, XRP fell very much against BTC. At that time, many people entered into transactions without stop loss. When the balance went to a small minus, they thought: “it's okay, it will grow soon”, in fact, at the time of writing, XRP had fallen by more than 70% against BTC since the beginning of the year. That is those traders who did not set a stop loss, lost about 0.7 BTC on each Bitcoin.

We will give figures with specific examples for better visualization so that you understand the risk of not using a tool stop-loss and what it can cause. As you can see, the cryptocurrency market is quite volatile, therefore, even close monitoring of your positions cannot provide reliable protection against the loss of a deposit.

2. Trading too much money

How to understand what you trade using too much money than you can effort? It’s very simple: if the loss of this amount significantly affects your family or personal budget, then you trade too much money for you. It is better to take a step back and trade half, third or quarter of this amount.

Ideally, a trade deposit should not exceed 5-10% of the investment portfolio, especially for beginners. For example, you only have 1 BTC, in this case, it is better to distribute these funds as follows: 0.9 BTC in the hold and 0.1 BTC in trade. But as you gain experience, you can increase this value.

However, do not forget that a trade deposit is not the amount that can be completely allocated to one transaction. If you enter the whole deal entirely, and it turns out to be unsuccessful, then you will lose. The entire trading deposit should be correctly allocated for transactions to minimize losses in the case of unpredictable market movements. If each of your transactions does not exceed 5-10% of your entire trading deposit, then you will be able to make informed decisions, as well as sleep a sound healthy sleep.

3. Emotional trading

When we observe how our portfolio grows or falls, we naturally experience certain emotions that can significantly affect our future actions. Next, we will tell you how to reduce the emotional part during trading.

Set goals

Before you enter a deal, you must determine the marks at which you are going to exit it. For example, if you bought BTC for $7000, then set yourself several goals:

• Take profit 5% – $8 000;

• Take profit 7% – $8 500;

• Take profit 10% – $9 000;
  

  etc.

No need to consider the above figures as a guide to action, this is just an example. The bottom line is that you must fix the prices at which you entered into transactions, as well as the marks at which you want to fix your profit. Write it in a notebook or create a spreadsheet on your computer.

Goals must be set not only for profit but also for loss, so you will never be a victim of such emotions like greed, hope, euphoria, depression, despair, etc. For example, when the rate of a certain asset grows, you continue to wait for even greater values on the chart. But then the price drops sharply and you hope that it will rebound to at least the previous value, but it continues to decline, and as a result, you suffer huge losses. Therefore, be sure to set goals, both above and below.

Control the number of transactions

Besides financial control, it is also necessary to keep track of the number of transactions. Set yourself a limit, for example, no more than 3 transactions per day, and it does not matter whether successful or failed. If you neglect this rule, then you run the risk of draining all your money.

For example, you made two transactions, and your balance began to go at a loss. After that, you decide to trade further to recapture the losses but you only worsen the situation. And the more unsuccessful transactions you make in one day, the more chances to drain all your money you have. All the fault is your emotions, which prevent you from making balanced and reasonable decisions. And if the day is bad, it is better to close the trading terminal and fix a loss of 10% rather than to try to recapture the losses and merge the entire trading deposit.

Whenever possible, trade only profit

To cope with emotions when trading, you need to withdraw the earned money in fiat. At first glance, this may seem like a bit of strange advice, but it works. Let's look at everything again with a concrete example.

Let's say you replenished your account on the exchange with $1000 and after some time you managed to turn it into $2000. Next, you need to withdraw $1000 to your bank account and continue trading in funds that, roughly speaking, have appeared from the air. Believe me, psychologically speaking, it is much easier to trade with such money than with your hard-earned money.

4. Overtrading

Many people want to earn a lot and quickly, and, therefore, they think that the more transactions they make, the better it will affect their final profit. Unfortunately, this is a big mistake, especially when it comes to newcomers.

A large number of transactions involves a strategy such as scalping. It means entering into dozens, in some cases, even into hundreds of transactions in one day. Traders who trade on this strategy close orders after a minimum change in the value of the asset. This strategy is quite energy-intensive, especially for beginners. Any day-trading involves a large number of transactions, so it is not suitable for beginners.

If a trader sits at the trading terminal all day and tries to find opportunities for a new transaction, it means that he is breaking this rule. Far not always it happens that your trading strategy matches the market opportunity to earn, so you do not need to constantly look for signals in the charts, trying to get rich as soon as possible.

One day Warren Edward Buffett was asked:

And he answered:

The less experience you have, the smaller the number of transactions you should conduct and, besides trading, it is better to have some other hobbies, because otherwise, sooner or later, overtrading can play a cruel joke with you.

5. Margin trading

Margin trading or leveraged trading is perhaps the most dangerous mistake not only for beginners but also for more experienced traders. Yes, of course, it is one of the most profitable, but at the same time one of the riskiest strategies. In margin trading, a trader takes a loan from a broker, often represented by the exchange, providing the amount of security - the margin in return.

There is percent for the use of credit funds, of course, but the trader has the opportunity to buy an asset for a much larger amount than is on his account. As a guarantee, the creditor has the user's funds.

It is worth remarking that each exchange sets the size of the maximum possible leverage independently. For example, the maximum loan size is offered by the Bitmex exchange - 100:1, that is, having only 1 BTC on the balance, you can enter into transactions in the amount of 100 BTC, thereby repeatedly increasing your potential profit. But at the same time, if the coin rate goes the wrong way literally by 1%, then you will immediately lose your funds. And as you know, the cryptocurrency market is subject to high volatility, so a 1% rate change can occur in a matter of seconds.

As a rule, margin trading brings income to exchanges, and not to traders, so beginners should bypass this tool.

Conclusion

Trading is the area of ​​activity where you can truly become a fairly wealthy person in a relatively short time. But there is no need to strive to get rich in one month or even more so in the evening, such attempts have a pitiful end as a rule.

If you want to earn money on trading systematically, then you need to turn off emotions, follow to the above rules, try to bypass margin trading and follow your trading strategy. Besides, you should not thoughtlessly copy the actions of other market participants. Over time, each trader must develop his strategy, which will bring him a relatively stable income in this highly volatile market.

We also recommend you to read the article “Top-10 tools for trade and analysis of cryptocurrencies”