Day Trading: How To Avoid 4 Of The Most Common Mistakes! [Beginner Guide]
Crypto trading is a complex affair with countless investment opportunities. However, success in day trading is not that different from trading forex or stocks. You need to understand day trading basics and stay up to date Crypto News be standing.
However, to get real results it is essential to know what mistakes to avoid day trading in order to be profitable in the long run. For this reason, we created this day trading error guide to help you avoid the 4 biggest mistakes in day trading in the future.
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# 1 Misunderstanding of the risk-reward ratio
Have you ever heard of the "risk-reward ratio"?
Lots of mistakes are made when people act on emotions, gut feeling, fake news, and other advice. For this reason, you should act more systematically, understand (and be able to assess) patterns, and have a neutral relationship with your trades.
The term “risk-reward ratio” refers to the amount of risk versus profit for a given trade.
The calculation is as follows: You look at where you can make potential gains or losses. If a coin is worth € 1 and you sell with a loss of € 0,90 or a profit of € 1,10, that would be a 1: 1 Risk-reward ratio. When a coin however Is worth 1 € and it can be sold for between 90 cents and 1,30 €, a Risk-reward ratio from 1: 3.
As a crypto day trader, your goal is to see and take advantage of such setups. With a ratio of 1: 3, a profit rate of 25% is enough to be profitable at the end of the day. Take a look at our graphic, which shows the calculations very simply:
WARNING: That Risk-reward ratio alone is not enough to make systematic decisions. If you start with € 6.000 and drop to € 5.400 from a losing trade, a profit of 10% will not bring you back to break even. These quotas only apply on a trade-by-trade basis; You have to reinsert your (new) starting value with each calculation in order to get accurate results: Your risk management strategy must take this fact into account!
Should you really be trading on a risk-reward basis?
Most beginners start with this, Risk-reward ratios to use to set your trade choices. Often times, this tactic is a mistake because the risk-reward ratio doesn't tell you how good the trade really is.
The trick is Find trades backed by “technical analysis” to legitimize your calculated risk-reward ratio. Many beginners say: legitimize your trades solely on the basis of risk-reward ratios instead of considering the price of the coin, functions, news, events, etc.
Many day traders are looking for Breakout and fall-through points and open a position when violent price movements are possible. So it goes without saying that the reward side is high.
This Trades have minimal risk: your percentage loss will be much lower if the breakout/fallthrough fails. However, if you are right, the uptrend will be substantial. However, your success will be determined by both your trade calls and your risk management strategy.
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# 2 Trade with insane leverage
Poloniex was (for most day traders) the introduction to margin-based trading. The leverage only increased 2,5 times. The ability to make profitable day trades and swing trades was pretty impressive back then.
However, the volume on Poloniex decreased. Many users have switched to Bitmex as they offer both the "trollbox" and leverage-based trading. The interface at Bitmex is very user-friendly and beginner-friendly.
Check out our Bitmex Trading Guide to speed up your learning process.
On Bitmex you can trade Bitcoin with 100x leverage, which is way too high. The market only needs to move 1% to wipe your position.
Many changes in the crypto world resulted in higher leverage becoming useless. The changes resulted in "crypto whales" having more Exchanges had a way to "manipulate" the market. The big players could regularly pump or crash the price 1-3%, making it impossible to plan trades properly. Bitmex also charges 15% for market orders. That means that closing a losing trade would never make sense.
With prices fluctuating dramatically between exchanges, prices on Bitmex and spot prices were out of balance; if you sell a CFD on Bitmex at a price below the Bitmex spot price, even a smaller (0.25-0,5%) price movement could liquidate your position.
Low leverage info
Avoid high leverage until you have enough experience and control over your trades. The only way that high leverage can be profitable in the long run is by trading a fraction of your money supply.
For most traders, 2,5x is the safe sweet spot. It is just enough to generate sizeable profits. This leverage is even useful when you want to trade small price movements.
5x is an adjusted leverage (with tight stops) when trading near breakout points (or fall-through points).
10x is a suitable breakout or crash moment leverage that you can expect immediately after a message-based “catalyst”
Put on tight stops and take advantage of this trading feature. Don't think you can time the market manually!
In fact, manually executing your stops is another mistake that many novice crypto day traders make. As soon as the crypto price directed against you, your expectations of profitable trades will change. They become more and more dependent on positive changes in price. It becomes exorbitantly harder to achieve a profitable day.
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# 3 Inability to understand risk management
Once you understand technical analysis and the basic rules of trading, the next challenge is managing your seed capital. Once you based on With an efficient risk management strategy, your capital will experience much more stable growth.
Bitcoin-News.One recommends everyone to read our article "Risk Management Basics for Crypto Traders". This article will help you gain an understanding of how successful traders manage their capital to be protected from losses, maximize profits and theirs to secure existing profits.
You can change your level of profitability by varying the amount of your investment capital. Optimize the amount of money you use in a trade and your profitability will be higher in the long run!
# 4 Trading based on irrationality.
A good example of this is the history of the Request Network (REQ). This coin had great expectations when it was in the ICO phase. In fact, the coin in the ICO phase raised nearly $ 33 million.
Interestingly, everyone waited for the mainnet release in anticipation of a bullish price correction. The coin fell further and further into the Satoshi value, while the value of Bitcoin fell at the same time. In fact, REQ's value didn't increase much compared to Bitcoin after bottoming out at € 6.000 in February 2018.
Why is that happend?
The liquidity in REQ stagnated in early 2018 because the coin lots "Hodler”And a few day traders would have. The project was only considered "respectable" after the mainnet release. Many Hodlers who bought back in September 2017 were looking for a way to sell the coin and continued their lost trade. Meanwhile many swing and day traders bought in the hype of the mainnet release before the event.
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The bigger players took advantage of this and sold the rumor.
Why? Crypto whales didn't buy REQ based on technical analysis. The sudden demand gave market makers the opportunity to exit without breaking the price too hard.
In June 2018 we see that the REQ was more than 75% below the highest price in 2018. According to their PwC and Wikipedia partnerships, as well as the Shopify plugin, the low of the coin was below 1.200 Satoshis, while the high a month after their highly anticipated mainnet release was more than 3.000 satoshis. The price is below 10% of its all-time high, so many hodlers have no choice but to wait in hopes of a full recovery.
What can you learn from this ?: The mood on the altcoin market has changed over time. What used to be a winning strategy is no longer effective. One cannot ignore an investment opportunity that seems "obvious", especially if it has been known for a while. Be careful which altcoins you choose for day trading.
Day trading crypto is more difficult today than in previous years. The market has matured and there are far too many cryptocurrencies out there today. Alone already the leading exchange Binance houses more than 300 different altcoins.
The market can no longer support day traders as well as it used to; with a larger selection of altcoins to trade it is important to know how to recognize "momentum" in a coin (and its community!).
We have also seen a change in how the market “works” in recent years.
The massive bear trend after the MtGox crash, which found strong support at € 200, prevented most altcoins from gaining momentum. Meanwhile The trend reversal was a catalyst for an altcoin bubble in which many cryptos rose 1-2x in just 10-50 years.
The accelerating pace of growth in the crypto world in 2017 has many eyes on altcoin day trading. It used to be mostly the die-hard enthusiasts and hobbyists (some with backgrounds in forex, online poker, etc.) and the market was easier to use. Now, between more traders, one currently collapsing BTC and too many altcoins to trade, the trading mentality is a little different.
Hopefully our round-up gives you a good idea of potential mistakes in day trading. Take the time to observe changes in the crypto markets as you trade, this will teach you when (and how) to change your trading strategy.
Good luck trading!
Quick tip: "Opportunity costs"is another important term to learn. If you were to sell Coin A to invest in Coin B and A increased 50% while B stayed flat, your opportunity cost would be 50% of your trading capital."
In 2019, cryptocurrencies established themselves as tradable assets. The number of investors in the crypto space right now is amazing. Profitable volatile coins are for one Altcoin Day traders still to be found. Allerdings you need to protect your capital now more than ever - if not, you will go broke before you get big results!
We are in the middle of the age of cryptocurrencies - and that is exactly a great thing! This means that in the Rule many day trading positions arise that can only be identified on the basis of a technical analysis. Our article "Scalping 30 Minute Trades - Day Trading Guide"will help you discover and exploit these profitable setups.