It’s one of the oldest chestnuts in pop psychology: the pain you feel when you make a mistake is twice as strong as the joy you feel when you get something right. That’s not entirely accurate, of course – some people’s pain receptors are more sensitive than others. But thank goodness most of us are hard-wired this way. This is how we learn.
Speaking of which, you’re going to make plenty of mistakes when you’re first learning about the wonderful world of crypto. This is a relatively new technology, and the financial assets it has spawned are highly volatile. Even the smartest of us will make crypto trading blunders from time to time; the pain is real, but as long as your wins outnumber your losses – let’s say 2:1 or more to keep with the theme – you’ll be doing fine.
With that in mind, place more emphasis for now on minimizing your mistakes rather than turning a profit. Some you can avoid altogether; others you can brush off by putting suitably small amounts of money at risk.
Here are the three biggest mistakes you should watch out for when you’re taking those first steps into the crypto trading market.
Mistake No. 1: Overconfidence
“I know what I’m doing, just give me the keys.”
– A Stupid Person
Maybe you do have some natural talent for crypto trading. You’re reading this, so you’re probably intelligent; I suspect you’re pretty good with numbers, and it wouldn’t surprise me if you’ve had some success in non-crypto trading, and/or something like sports betting or online poker.
All well and good. But talent doesn’t become skill without the right training and experience. Even if you’ve developed those numerical skills dealing in mutual funds or stacking your opponents on the felt, there are specific things about crypto trading you don’t know yet.
Accept that fact so you can start learning them.
Mistake No. 2: Poor Bankroll Management
I could have gone with poor planning in general here, but I want to stress the importance of your bottom line. Your bankroll is the lifeblood of your entire portfolio. Without it, you’re hooped. Here are some quick rules of thumb you can use to stay afloat:
- Start with money you can afford to lose, and keep this money separate from the rest of your portfolio. That way, the mistakes you make in the crypto market won’t ruin you.
- Risk very small amounts of money at first. You can even practice risk-free by doing “paper trading” using a program like Phemex or TradingView Simulator. Either way, this let’s you get into the crypto market, mess around a bit for the sake of experience, and make those inevitable mistakes now while they’re cheap.
- Only risk a small percentage of your bankroll on each trade. As they say, don’t put all your eggs in one basket; diversify your crypto portfolio by dividing your bankroll the same way you might for sports betting (min. 100 units) or poker (min. 20 buy-ins for cash games).
- Set a stop-loss for each trade you make. More experienced traders can ride out short-term losses in search of long-term gains, but unless/until you know enough to say those gains are likely, be prepared to bail on any position if you lose, say, 25% in one fell swoop.
Mistake No. 3: Not Keeping Track
Whether it’s a journal, spreadsheets or some combination of both, if you’re not keeping a record of your crypto trading exploits, you’re on the Road to Nowhere. Do the accounting for your trades, however boring it might be, but also keep a notepad handy to jot down any interesting ideas you may come up with. Those creative juices will help you deal with the more mundane aspects of bookkeeping.
These are the Big Three mistakes when it comes to crypto trading. The next level after this includes things like not paying attention to brokerage fees; then you get into more advanced concepts like the Kelly criterion and the Sharpe ratio. Very important topics indeed, but start with the basics first, and you’ll be one step closer to calling yourself a crypto expert.
