Experts explained why many newcomers to the crypto market are plagued by failures and what rules should be followed to make transactions profitable
Novice traders can make serious mistakes that ultimately lead to losses. Topplabs.org experts explained what to do when trading cryptocurrency in order to minimize risks.
Someone else's ideas
Many beginners start trading cryptocurrency using the strategies and ideas of other traders, but this is unlikely to lead to anything good, says Artem Deev, head of the analytical department at AMarkets. According to him, the essence of a trader's work is to analyze the market, make his own forecasts and search for their confirmation.
“If you are confident in the growth of an asset, buy and hold. I am sure that it will fall – sell and transfer to other instruments. It should be remembered that everyone can have mistakes, as well as losses and profits, "the analyst explained.
Overconfidence
When trading cryptocurrency, one should not be too self-confident, since the situation on the crypto market changes every second and a trader must be ready for these changes, says Vladimir Smetanin, CEO of the Swiss financial company Newcent. He recalled that cryptocurrency is a very volatile asset, and the digital asset market is practically unregulated. Therefore, investors should be restrained and invest a small part of their portfolio in digital currencies, Smetanin added.
Too active trading
Entering the crypto market, newcomers are trying to catch every move and trade all promising coins, but this is the path to quick burnout, says Nikita Soshnikov, director of the Alfacash cryptocurrency exchange service. He explained that active trading during the day (intraday trading) is suitable only for a limited circle of traders who are well versed in technical analysis, feel the market signals and understand that crypto assets can move contrary to traditional ideas about market mechanisms.
“With such an intensity, it is difficult for beginners to maintain the quality of transactions, and the risks of succumbing to emotions are very high,” the expert noted.
It is more advisable for novice traders to make deals not too often – at least once every couple of days or a week, Soshnikov said. In his opinion, it is easier to predict on such a planning horizon, since it is possible to move taking into account the general trend in the market.
Technical analysis is not a guarantee
Technical analysis can give an idea of what is happening in the market at the moment, but it does not include fundamental factors that can greatly affect the quotes, explained Deev. According to him, technical analysis helps to make forecasts based on the previous dynamics.
"Technical analysis does not predict in a situation where mining is prohibited in China," the analyst said.
Technical indicators work well in a stable market environment, Deev explained. He added that a trader should always consider the risk of a complete change in the situation due to some kind of news.
At the end of May of this year, the cost of bitcoin per day decreased by more than a third after the Chinese authorities banned organizations from providing services for storing and managing cryptocurrency and called for a complete ban on mining. The situation repeated itself in early September. Then bitcoin fell in price by 16% per day after a complete ban on cryptocurrency transactions in China.
Compensation for losses
After exiting a losing trade, the trader may want to compensate for the loss by entering a new position, but this is the wrong goal, Soshnikov believes. He advised novice traders to try to shut off emotions and work with a cool head.
“The goal should be to get profitability: some deals are negative, some are positive, but the main thing is that the overall balance should increase,” the expert noted.
If the overall balance decreases, it is worth taking a break and conducting a thorough analysis of transactions to determine the reasons for the failures, Soshnikov advised.