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Most Common Mistakes to Avoid While Day Trading Cryptocurrency
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With the market capitalization of Bitcoin reaching an astounding $237.62 million in 2017, it’s no surprise that you’re interested in day trading cryptocurrency. The next cryptocurrency that you invest in could be the next Bitcoin if you make the right decisions.
It can be difficult to get a handle on day trading cryptocurrency, as there are so many cryptocurrencies you can choose to invest in, and the market can change rapidly. Not knowing how to day trade properly can result in you losing a lot of cash. Here are some of the most common mistakes cryptocurrency day traders make.
1. Trading Too Much
It’s easy to become eager to trade after finding out the amount of promising digital currency on the market, especially if you’re new to trading. However, it’s important to use logic instead of excitement when trading, as trading too many cryptocurrencies can result in less profit. Being glued to your computer screen and keeping track of every change in price can lead you to make the wrong decisions.
Sure, you might miss out on a seemingly good opportunity to get cash, but there will always be more in the future. Since the market for cryptocurrency is constantly fluctuating, your time will come if you’re patient and rational about your investments.
2. Not Using the Best Tools
Despite the fact that there are plenty of cryptocurrency trading tools out there, they aren’t all suitable for day trading. Trading tools that aren’t optimized for day trading can actually hinder your progress.
For example, storing your cryptocurrency in a digital wallet can prevent you from day trading efficiently. These tools are extremely secure, but the long length of time it takes you to log in and complete transactions can slow you down significantly. Try out a tool that is made specifically for day trading cryptocurrency instead.
3. Choosing the Wrong Exchange
The number of cryptocurrency exchanges is growing faster than ever. Choosing to trade on a newer exchange that hasn’t been tested isn’t the best idea–the exchange might end up prohibiting withdrawals, or it could become unavailable at inconvenient times.
One of the most essential pieces of cryptocurrency advice is to begin by using a reputable exchange that’s been around for a while. Make sure that they accept a variety of cryptocurrencies.
4. Getting into Sticky Situations
Don’t get caught in a situation that you can’t leave. In cryptocurrency trading, it’s sometimes more simple to get yourself into a situation than to get yourself out of one. Some exchanges prove to be very illiquid, meaning that they lack buy orders, which prevents you from selling your cryptocurrency at a reasonable price. On the other hand, some exchanges have a more consistent liquidity, but can suddenly have a lower volume of trades–this typically happens on weekends or holidays.
When you get caught in an illiquid situation, you’re unable to leave. In other words, you could lose out on another important opportunity to make cash.
Instead, close out your positions on nights and weekends–this enables you to get around times that have a lower trading volume. You could also use a trading tool that allows you to trade on multiple exchanges at one time.
5. Diversifying Too Quickly
Many new day traders think that quickly investing in a wide range of cryptocurrencies can result in tremendous profits. However, investing in a number of currencies simultaneously can be a huge mistake. With the high amount of altcoins on the market, it’s extremely difficult to figure out which altcoins are and aren’t authentic.
The bottom line is that you should research as much as you can before you start day trading. Pick currencies that have high trading volumes and market capitalizations. You should begin with Bitcoin and slowly branch out to other altcoins when you feel that you’ve gotten the hang of it.
6. Not Using Risk Management
One of the most important cryptocurrency trading tips is to use risk management. Not having a plan when it comes to risk management can result in major losses. Whenever you invest, you need to be able to know how to hedge your trade to save you from wasting your time and money.
Aim to use several different exchanges. When you notice any signs that the market might change, purchase the cryptocurrency that’s worth the least, and sell a small amount of what’s worth the most. You’ll obviously make money if the value increases, but you’ll also be protected if the value decreases–simply buy the stock again for a lower cost.
7. Not Analyzing Your Past Performance
The best crypto traders are aware of their own mistakes and don’t repeat them. If you don’t know where you went wrong in the past, you’re bound to keep repeating the same errors over and over. You must be able to adapt to a market that’s constantly changing.
Even the most experienced day traders can get better. Stay updated on the latest happenings in cryptocurrency, and make sure to keep these events in mind before trading.
8. Abiding by Technical Charts
While you shouldn’t make decisions based on what you’re feeling, you shouldn’t spend too much time analyzing charts either. Solely basing your trades on charts results in you being oblivious to the current events affecting cryptocurrency.
Be suspicious about the chart you’re reading. Always try to determine if the source is valid and if there’s an outside source affecting the numbers. Look behind the data–find out their implications, and if there’s anything impacting the numbers.
Don’t just read charts all day. These aren’t the best predictors of where the market is headed. Take the market’s status into account and then make your move.
Day Trading Cryptocurrency the Smarter Way
Don’t let your emotions overpower you as you experience the roller coaster that is day trading. As long as you control your impulses and are equipped with the proper knowledge of the cryptocurrency market, you’ll be closer to reaching your goals. In the end, day trading cryptocurrency is challenging but definitely worth it.
If you’re looking for access to some of the best tools in crypto trading, check out our blog and sign up for a free trial today.