Trading Cryptocurrency is Not Easy - 10 Things Newbie Traders Must Know

Updated: Sep 10, 2021

Trading cryptocurrency is similar to traditional stocks but comes with far greater risks and a mixed bag of caveats every new trader should know before laying down your hard-earned cash on the line.

You've probably heard a lot of stories about people who made tons of money in the crypto space. Some have turned $1,000 into millions in a matter of months. Several people traded altcoins made made 200x on investments daily. To the uninitiated (newbies), this seems like an easy and sure way to get rich quick. The leave their jobs to become crypto traders even before they learned the basics of trading and managing risks. We all know how this story ends. Blown accounts, mountains in debt, sleepless nights. A lot of crypto traders ended up worse than when they started out.

Being a trader in any market is hard. Over 90% of traders fail, mostly within the first 90 days of trading. Many generally go broke or perform far worse than simply investing a lump sum in a safe investment and leaving it grow. Contrary to popular belief, the crypto market is the MOST DIFFICULT MARKET to trade for beginners.

The Crypto Market Never Closes

The Crypto Market shares some similarities with the Forex market, in the sense that is is open 24 hours -- crypto market including the weekends. To a newbie trader, a market that is open 24/7 gives out a feeling that they always have to be trading. This not only causes tremendous exhaustion but also magnifies the Fear of Missing Out (FOMO) for emotional traders. Newbies are notoriously impatient and emotional. They still haven't mastered the grit required to succeed in the markets. Going back, nobody can monitor a market that is perpetually available, and new traders find it difficult to step away. This often ruins personal lives and destroys their finances.

The Crypto market is not the best place to start out for newbies - enough said.

What Fundamentals Are You Talking About?

I hear many crypto traders talk about Fundamentals and how it affects the crypto space. Really??

The Crypto market lacks fundamentals. Legacy markets such as Stocks, Forex, Commodities, and Indices does not exist in Crypto. When purchasing a stock, a trader can view earnings reports, sales reports, the company's road map profile, and countless other barometers of success. In the Forex markets, tons of information about a country's GDP, Retail Sales, Interest Rate Decisions and Job Markets are available all to make the right decision whether to Long or Short a currency pair. More importantly, companies trading these assets are regulated and therefore transparent. This means you generally know what you are buying.

In the crypto world, this is irrelevant for a trader's purpose. Traders use technical analysis, which is hard to use properly for newcomers to the space.

Bitcoin and the other Altcoins

The interplay between Bitcoin and altcoins is another messed up algorithm that adds to the overall confusion. Alts are rarely safe to trade and finding opportunities requires tremendous patience and experience -- both things new traders lack big time.

New traders often think that the success of their trades can be gauged in the USD value of the coin, not realizing that leaving their capital parked in Bitcoin would have been a far more profitable strategy. Trading legacy markets with fiat is straightforward -- you either make or lose dollars.

Stop Loss and Take Profit Order

Forex and Stock traders have the benefit of placing both stop orders and profit orders, as well sa trailing stops. Therefore, trades requires less management. In crypto, exchanges lacks the full breadth of orders necessary to properly manage risk, specially in a market that never closes and to add, with insane volatility.

Experience crypto traders can share on numerous accounts about missing a huge pump while they were sleeping because they had their downside protected with a stop loss and were unable to set sell orders at their targets. Traders should never have to choose between taking profit and properly managing their risk.

$10 into $1,000 with Leverage! Beam Me Up Scotty!

Leveraged trading is too common among beginners. Most of the time they would overleverage in the hope of striking it big in their first couple of trades. It's far too rare for this to happen. Leverage is a tool that should only be used by the most experienced traders, those who have proven to be profitable for years.

The barriers to entry are non-existent in crypto. Crypto exchanges such as Binance or Coinbase that are built to transfer the wealth of inexperienced retail traders into the pockets of exchanges themselves. There's proof all over the place and experienced traders know this for a fact. Beginner traders will likely shrug this idea and lose everything they risk with leverage trading before they heed these words.

Getting Rich Quick is Easy. Yeah Right?

In legacy markets (Forex, Stocks, Commodities etc.), nobody expects to get rich quick. Crypto trading appeals to people looking to quickly turn a small sum of money into their retirement, which is very unrealistic and rare. You might have seen crypto traders rolling up on their Lambos and cruising in their yachts, while beginner traders end up selling their cars on the used lot to pay rent.

Those who got rich quick in Crypto were mostly lucky, not good. There is also a difference between being wealthy on paper and in real life -- Most crypto traders who 'got rich' failed to sell at the top and saw their paper wealth disappear as quickly as it was made.

Crypto is Not a Safe Investment

An inexperience person is less likely to go broke buying a random stock than they are buying any available asset in crypto. The stakes are far higher in crypto. Crypto is not a safe investment and should only be a small part of your overall trading portfolio.

There is no sure path to financial ruin than spending all your hard-earned cash on assets being manipulated by exchanges for their own profit. Never base your decisions on the advice of those who don't have to deal with the results. The Crypto master trader as you know it is not a master but also a slave to the exchange.

Buy Cheap, Sell High. Are You Brain Dead?

A common mistake that many traders make is averaging down. This means buying more of the coin as the price drops with the logic that a good thing is not cheaper. This logic only applies to investing, not to trading.

A price dropping significantly should invalidate their trade idea and cause their stop loss to fire. Most beginners do not understand this and dig themselves a deeper hole than necessary.

Risk Management is #1

Yeah, I know. Risk management is boring. It also happens to be the most essential skill to be profitable. Understanding how much to risk on a trade and how to properly balance a portfolio are exponentially more important than entries and exits. Newbie traders only focus on their entries and exits. Professional traders focus on portfolio management and risk litigation. Learning this takes time. Most new traders will go broke before they understand this.

People would be better off investing their hard-earned cash slowly. Do not even think of devoting your entire account balance solely for crypto trading. It's a big mistake that most traders realize late in the game.

Trading in general is hard-work. It's not a get-rich quick scheme. If it were, then why the hell aren't all crypto traders rich yet?

This article represents the views and expressed opinion of the writer. This does not constitute investment advice. Trading CFDs and other assets have risks involved. Only trade with money you are willing to lose.

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