How To Get Wrecked Trading Bitcoin

wrecked trading bitcoin

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When you first hear about bitcoin, you’re probably going to take an interest in the asset due to the price movements and high volatility. The idea that markets can move 5, 10 even 50% in a day means there is ample opportunity to pocket big spreads if you can correctly time the market.

That is a fact, but executing picking tops and bottoms is far harder than it sounds, even for the most experienced traders.

When most of us bought our first bitcoin, we had no idea what we were doing. When you don’t know what you own, you’re more likely to want to treat it carelessly and try to trade bitcoin up for more fiat. You’ll spend hours, days, even months reading research, following the news making sense of those red and green lines on charts to help guide your trades.

But even then, the majority of those who choose to trade bitcoin will walk away humbled or carried off the field well and truly battered. Mistakes are always teachable moments and learning from your own mistakes is valuable, but learning from others can save you a lot more heartache and pain.

To prevent newcomers from making the same mistakes that bitcoiners of previous cycles have made and live to regret. Here is a list of seven common mistakes you must avoid as a beginner in bitcoin!

Trying to trade the news

New traders are extremely sensitive to the latest narratives and tend to take note of the latest stories and then try to apply the negative or positive outlook to their trading strategy. 

Big news events can generate short-term volatility, and during that time, it’s all about who acted on it first; sure, you could get in early and make a profit on a greater fool coming in thinking they can trade the news, but more often than not you wouldn’t be the first to place that trade.

This is not to say news cannot provide excellent trading opportunities; it requires a special kind of skill to nail it, connections and speed.

Generally speaking, new traders are better off avoiding trades in response to the news. Since the average retail trader simply doesn’t have an edge in information distribution. By the time you hear news on popular websites or on mainstream media, the news is already priced into the market by traders in the know when it hits the presses. 

Trading sentiment based on general news sources is a great way to hand over your money to those closer to publishers and information sources.

Copy trading or following influencers

My personal standpoint is influencers are a net negative in the space and offer very little value and only add to the noise around bitcoin rather than driving real education. To the outsider, influencers seem harmless, they’re simply rehashing news stories, giving their opinion on certain events or interviewing others in the bitcoin and investment landscape, but that’s only the surface.

If the influencer is leveraging the so-called social proof to drive you to products like:

  • Trading courses
  • Trading platform affiliate links
  • Signals groups

These are all red flags. 🚩

Don’t you think if this person was a successful trader, they would double down on what they are successful at instead of wasting their time making videos, recording podcasts and offering you these trading products? Also, none of these products put them on the line; the paid shill or grifter can always claim that you didn’t execute properly or buy at your own risk. 

Another less popular influencer service is copy trading because you actually have to put your reputation on the line, so very few take this path. More often than not, it’s the really clueless influencers who have no business being in financial products offering these services and blowing up not only their account but yours too. 

The only difference is they might have other income streams that cover them, while you may not.

 If you want to be a successful trader, copying other people is not going to get you there. Moreover, if you do decide to copy trade, you will be fully at the mercy of the trader you follow. There are endless things that could go wrong — things beyond your control.

The only way to prevent this is by trading your own money using your own strategies, which is what you should be doing if you want to be successful in this game. 

Put in the effort to get better at it or opt for a passive strategy, like dollar-cost-averaging.

Opening a trade because “the market has to reverse eventually”

New traders tend to look at charts in a microcosm and don’t zoom out, so they miss larger cyclical trends or historical patterns. Plenty of retail traders will draw an imaginary line in the sand and try to go against certain trends because they feel it will reverse.

They will use charting to confirm their bias, like RSI indicators or moving averages and think that these indicators are infallible. In such cases, these traders get blind sided as prices may continue to move in one direction for a lot longer than you think.

If going against the trend is something you want to learn more about, look into mean-reversion strategies. They can be immensely profitable, but only when you know what you are doing. If you are not there yet, do not swim against the tide unless you feel like clearing out your account.

Trading with bigger position size than you should

Some new traders enter the market overzealously and take a position with everything they have, and picking a specific price point as their overall exposure. When the markets swing in the opposite direction of your play, traders get liquidated. This can happen in the spot and futures market, where beginners take on heavy losses, especially if they do not have stop-loss.

Sometimes, when the market turns against you and profit is off the table while minimising losses should be your goal. It is better to survive with a smaller dent than try to swing for the fences trying to make money on every trade. It is better to close trades sometimes, so you don’t lose more than a few percent of your portfolio. Taking lower risks will allow you to trade more objectively and protect you from adverse market events. So if you do take losses, there is a possibility of you trading your way out of the hole when you trade with smaller sizes.

A lower-risk strategy will limit the size of your wins, but as we established, bitcoin is not a get-rich-quick scheme. If you absolutely must trade, building your account slowly is wiser, as well as only trading with a small portion of your overall bitcoin stack.

Trading with leverage

Leverage is a great tool for experienced traders; in markets with low volatility, but when you combine a product like a margin trading at insane levels with the volatility of bitcoin, boy, do you have a recipe for disaster.

Leverage trading is extremely risky for new traders, especially in the grey area that is the off-shore trading bitcoin market. These high-stakes exchanges can offer up to 125x leverage on some assets.

The main idea behind leverage is simply it’s a tool that allows you to enter more sizable positions without investing more money. Basically, at a 50x leverage, you can buy $50,000 worth of an asset using only $1,000.

When experienced traders use leverage, they are often hedged in other markets and have ranges in which they are willing to take losses or have access to additional capital to maintain a position.

When it comes to retail, they’re often going in blind and end up on the wrong side of the double-edged sword; instead of getting exposure to greater profits, the new trader suffers greater losses. Exchanges use a mechanism called liquidation which will be automatically triggered if your position doesn’t go in your favour, wiping out your entire account.

Trading complex products you don’t fully understand

When novice traders enter the market many only have dollar signs in their eyes and have no real plan. If you buy a bitcoin with the hopes of making quick profits, there is a possibility that the trade goes against you.

Often, new traders fail to account for this scenario and end up having to improvise when a trade turns sour. This can push traders further out the risk curve to take on products like futures or options trading on bitcoin and if you don’t know the risk you’re taking, this could quickly turn into a death blow.

Traders should get comfortable with trading the spot market and hitting regular profits before considering exposure to derivatives. They want to encourage you to trade as much as possible and take on as much risk as possible. Ignore the fact that exchanges will allow you to take such a risk; that is the exchange’s business model.

Don’t trade based on an exchange’s incentives but on the risk, you can comfortably tolerate.

Having to improvise in a losing trade is the last thing you want to do, as the emotions will cloud your judgement significantly. To mitigate this, you should enter a trade with both the winning and losing scenarios in mind and stick to it, so you avoid improvisation. Nevertheless, sticking to your plan will be incredibly hard. The only way to get better at executing these plans is by experience and having conviction in your thesis along with a strong mindset focused on an end goal.

Having too much custodial exposure

One risk that many new traders don’t think about is the custodial risk they’re taking, when you hold your funds with a third party. Many traders tend to leave their funds with an exchange so they can trade constatnly or hold positions while they might leave dry powder on an exchange for margin calls or future trades or get exposure to yield products in the time being.

Instead of de-risking and taking some of your bitcoin into self custody traders who leave all their funds on exchanges run the risk of losing all their money if that exchange is insolvent. A reallty many traders have had to face in the decade or more of bitcoin trading.

Trading with too many emotions

Trading psychology is a critical part of trading, especially for new traders who have a distinct emotional connection to the capital. Like any endeavour, trading is affected by emotions and the human mind.

The concept applies both to traders and long-term investors who all suffer from feelings of anger, doubt, greed, boredom, and impatience which can affect your trading strategy and your ability to execute trades, especially stopping out losses or when to take profits.

If you are going to play the trading game, you need to discipline yourself and your psychology, or you could quickly get swept away with emotionally driven reactions that will see your account cleaned out.

Exchanges are not your friend

Do you use a crypto casino, or have you switched to a bitcoin-only service to acquire your satoshis? Do you find these multi-coin exchanges valuable in your neck of the woods and see them as a necessary evil? If you do use one of these casino exchanges, what would get you to switch to another service?

Let us know in the comments down below.

Disclaimer: This article should not be taken as, and is not intended to provide any investment advice. It is for educational and entertainment purposes only. As of the time posting, the writers may or may not have holdings in some of the coins or tokens they cover. Please conduct your own thorough research before investing in any cryptocurrency, as all investments contain risk. All opinions expressed in these articles are my own and are in no way a reflection of the opinions of The Bitcoin Manual

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