Episode 2 - Top 10 Mistakes New Traders & Investors Make In Cryptocurrencies - Part 1

The Podcast is available in audio, video and text. Please click on the episode you are interested in.

AUDIO:

VIDEO:

TEXT:

Welcome to the Blockchain Immersive blog. In this entry I am going to tell you the top 10 mistakes new investors and traders in the cryptocurrency markets make and how to avoid them. I am splitting this up into 2 articles because I want to give adequate explanation to why I consider these the top 10 mistakes. I don’t see many people discuss these mistakes, but they really should. What you will learn will be worth your while.

Now before I continue, I do want to say that I am not a financial advisor and I am not telling you how to invest your money, I am just expressing an opinion based on my experience trading.

With that said.

All these tips can be used for really any market. I have managed to avoid these mistakes in cryptocurrency because I came into it with a trading background. And the process of trading cryptocurrency is not dissimilar to other markets.

Now before I go into it, there is this saying that the number one mistake traders and investors make in any market, is not to buy high and sell low.  On the surface that makes sense. If you buy high and then sell low, you are losing money. But ill tell you this, anyone who tells you  “ Avoid buying high and selling low” without a solution or context shouldn’t be listened to and let me tell you why. First off, WHAT IS HIGH? High relative to what?  Here look at this chart of Bitcoin. As it was going up, when do you determine what is high? Each day it went higher and higher. So to tell someone to NOT buy high and sell low makes no sense.  This advice lacks context. SO, if someone tells you that and doesn’t give you a solution to this, then please ignore them.  The concepts you will learn over the next two videos will give you the information you need so you don’t find yourself in that horrible position of actually buying right at the high of a market.

Let’s get to it.

1. Investing Or Trading In A Cryptocurrency Based On A Rumor: Rumors are everywhere and in every market. Investing in something on a rumor can at times be profitable, but often times this leads to loses. It’s all psychological. Think about it, A rumor is sort of like a secret. When you hear it, you feel like you are in the know. This is a very powerful emotion, and it speaks to our desire to feel special and informed. But, when it comes to markets, it’s a dangerous thing to do. Best way to avoid this is to DO YOUR Research. Don’t just jump into something because you saw it on reddit. In my course Blockchains, Cryptocurrencies and beyond I show you different ways to do research.
2. Not Taking The Time To Learn The Markets Because Of Fomo: I get it, when cryptocurrency markets are moving, you want to jump in. Hey, if you have money to burn go for it. But really, the best way is to learn the markets so you can get a feel for them. Pick a cryptocurrency, anyone of them and look at its price patterns over the last year or so. Play around with service like intotheblock.com and tradingview.com to get an idea of what moves these markets. Read news services like coindesk.com or bitcoin.com.  Most people avoid doing it because it will take too much time to learn, and they don’t want to miss the move. I get it and if you feel you don’t have time to learn, just know that your long-term chances of success will be slim. Knowledge is not power, its potential power. Using your knowledge that you acquire will give you that power.
3. Day Trading Without Mental Preparation And A Plan: I see SOOOO many people without trading or investing backgrounds jump into day trading as their introduction to investing and trading. Just in case you do not know what day trading is. Day trading Is when you execute a short term trades on a cryptocurrency. The trade can last seconds, minutes or hours, but it is usually always closed out at the end of the day, win lose or draw. Day trading is not for everyone. Day trading if don’t properly is very profitable, but you need 2 things.  

 Nerves of steel because the trade is so short term, the reactive part of the brain will be kicked in high gear. Adrenaline is NOT YOUR FRIEND HERE. New day traders constantly lose because if the market moves even a small amount against them, they bail out , but often as they bail out, the market then goes in their favor and they jump right back in. Or the market moves against them and they get paralyzed and don’t take action because of fear.

 Day trading requires you to have a clear plan. My day trading is systematic, I am a Capricorn, we like lists and systems . But even a simple plan as saying ”If I make 1% of my investment or account I am out for the day, or if I lose 1% of my investment or account I am out for the day.” I am just saying 1%, you would need to determine the right percentage for your circumstances. Look, that is not exactly the best strategy in the world, but it is better than just jumping in an out based on fear and your perception of what a move means.

 So keep in mind that day trading without having mental preparation and at least some rudimentary plan is the kiss of the death MUUUAH lol

4. Overemphasizing Profits While Underemphasizing Losses: When we make a profit in the market, a few things can get in the way especially, if you are a beginner. When you make money, there will be euphoria, which is fine, I still feel euphoria too when a big trade goes my way. But here is where it gets dangerous. When you have a string of successful trades or investments, something happens to the mind. You actually start thinking you are a good trader. Ill tell you this, even if your first 10 trades are winners, you are not a good trader, not yet anyway. So, when you are going through the winning streak, you tend to take on more risk. You start to think of “how much will I make if I buy this much more of this crypto?  Notice what is missing from that statement. Can you guess?  What this statement should look like is “ How much can I make if I buy more of this crypto AND how much can I lose? That last part about lose is never in the equation when you are drunk with a string of successful trades.  You will overemphasize your ability to make profits and underemphasize your risk and potential loses. Often this really bad mental habit is broken when the winning streak ends, and you sustain a huge loss. And that loss is most likely a result of two mental logical and cognitive fallacies.

 Sunk Cost Fallacy: You already put money into this trade, and it is against you, but you can’t seem to let it go. You will irrationally cling to the trade.

 Confirmation bias: If you see even one thing that may favor your trade, you will use that to confirm your bias even at the expensive of your account. You’ll cling to that trade for dear life even as loses mount. To avoid this, start from the idea not of how much profit you will make, first think about how much you are willing to lose on a trade first. Once you have your dollar amount, this will give you more control over your emotions. Then, think about your profit targets.

5. Setting Irrational Profit Targets: Now to clarify, I am not talking about setting irrationally high profit targets, that’s is another issue, but I am talking about something completely different. There is another irrationality we often apply to picking profit targets, and that is quantifying our profits in round numbers. Our minds LOVE round numbers. Here, Ill prove it. If I offer you a discount of 80% on a course, that sounds pretty good right? What if the discount was 81.7%? Sure, you’ll take it but I am willing to wager that you will ask yourself “why 81.7%? What an arbitrary number.” Well, guess what, 80% and 81.7% are equally arbitrary, the difference is, we like round numbers and therefore we gravitate to it. Notice when people analyze the market they say often call it “ psychological level” and in each case it’s a round or even number. They say bitcoin surpasses the psychological level of 50k or 60k they don’t say 51,567 lol. They even studied this. When you get a chance, read this article:  https://news.rpi.edu/content/2020/07/06/consumers-prefer-round-numbers-even-when-specific-number-better-news  

  It goes into why people love those round numbers.  SOOO to get back to my point.  If, say you made 927 dollars today on a trade. You might be tempted to say , “let me take one more trade to make it a cool thousand.” Or, say, you make 347 dollars, you may be temped to take a another trade to get your profit up to 500 dollars. This is irrational, it is your minds need to embrace whole numbers or and even numbers. Resist this like the plague. When you do your risk analysis, if you see a trade has the potential to make a profit of say 327 dollars, don’t round it up to 350 please. The other day on three trades I made after everything, $2329.79. When I booked the profits, I called it a day. I wasn’t temped to make it a cool $2500. This may require you to set price targets that are irregular. Here, take a look at two profit targets I have for Ripple on this one trade. I was taking profits on a trade in which I bought 2364 ripple. My profit targets were: $1.357 and $1.659.  Does that drive you crazy? I based my targets on market levels that were  avoiding round numbers. So please keep that in mind, always base your profit and loss targets  for that matter on actual research on price levels and not based on “I want to make 500 today” the market may not give you 500 but it might give you $167.23 😊  Take it.