3 Common Mistakes New Crypto Traders Make

When it comes to trading in the crypto space there are three common mistakes new traders make: going against the trend, trading in consolidation periods and forgetting to reduce their risk.

This is especially true when it comes to trading highly volatile coins with a low market capitalization and it pays to remember that when bitcoin’s price moves so too does the rest of the crypto market.

Take for example bitcoin’s recent breakdown seen Oct. 11 at 00:58 UTC, when the price dropped more than $400 in 30 minutes.

This had the dual effect of reducing the total value of altcoins while undermining investor confidence due to BTC pairings with prominent coins such as ether (ETH) and XRP.

Then there was the tether (USDT) scandal that saw the price of the infamous stablecoin drop to $0.869 on certain exchanges, creating a $300 disparity in bitcoin’s price amongst those listing tether’s price pairings versus those listing plain old USD.

Daily Chart

While traders may be aware of the price pairings and the fundamentals behind these wild price swings, they continue to dabble in alt-coins amid uncertain consolidation periods (see Oct. 11-Oct. 24. in its most recent range between $6,350-$6500) usually in blatant disregard to the primary fact that bitcoin could bring them under.

Indeed savvy day-traders like Philakone and CryptoChoe enjoy making trades on short-term periods that garner 2-3 percent despite the overall market trend being bearish — they make it work based on their personal trading styles and low-risk appetite.

To the newly crypto initiated, however, it can often be a dangerous game as consolidation periods generally breakout/down hard and fast, leaving many short/long positions in the dust.

This is especially true if you are a high-risk taker that continues to “all-in” on your favourite coin without first assessing the direction of grand-daddy bitcoin and the fundamentals affecting the market.

It’s always best to wait for confirmation in a change of direction or trend to reduce the risk of being caught on the other side of the fence with your pants down.

Weekly chart

Often times, inexperienced traders will sit on their investments long-term after a big move, believing that the price will go back up.  However, it’s paramount you observe the overall trend before deciding on a reasonable entry/exit.

As we can see on the weekly chart the breakdown from Dec. highs flung the cryptomarket into the jaws of the big sleeping bear and has remained a bloody mess for 9-months.

This choice often leads into the stubborn investor “HODL” mindset, whereby traders refuse to sell the given asset based on their belief that price will rise back to the level they bought in just so they can ultimately exit the market altogether.

But waiting on a recovery could take years, with some having tied up the majority of their personal liquidity in crypto – the situation would look fairly dire.

It’s possible that the majority of new traders seen toward the end of 2017 are just itching to exit the market based around that particular strategy and certain price levels in hopes of coming out of the whole ordeal cost neutral but there is merit for the “HODL” strategy.

Provided you don’t check your Blockfolio every hour of the day.

If you bought bitcoin at $10,000 why do you care what the price is today? That, of course, depends upon your risk appetite, trust in the asset and whether or not you’re happy to wait out another possible year of bearish conditions with your “loose change” locked up in crypto.

Which brings us to the last strategy new traders forget to embrace; reducing your risk of exposure in the market.

This can be achieved simply by limiting the total amount of coins you buy at each juncture/period and the variety of coins you decide to stock in your bags.

As mentioned above, too often is the case that new traders will decide to “all in” on their favorite crypto as all this really achieves is increasing your exposure to market fluctuations and volatility.

So don’t be the guy that puts all his eggs in one basket or you’ll get burnt.

On a side note, it is worth being wary of the amount of disinformation out there as noted by Anthony Pompilano who demonstrated the case by posting a tweet that possessed bullish sentiment at the expense of inaccurate information, thereby accruing large activity on the tweet, while duping many in the process. The experiment showed that the dissemination of misinformation is generally linked to opportunistic agendas, so it pays to do-your-own-research (DYOR).

Recap

  • Reduce market exposure and risk by purchasing a variety of assets at different price levels.
  • Define a clear strategy and get out of the habit of “HODLing” investments in the long term, even if you believe in the asset class, don’t consistently buck the trend – be aware of it.
  • Consolidation periods are sketchy at best with no clear entry or exit signals, so it is best to wait out these periods.

Disclosure: The author holds USDT at the time of writing.


Source
Author: Sebastian Sinclair
Image Credit: charts by Trading View 

Don’t Make These Mistakes in a Volatile Market

Last year, the stock market’s ups and downs were a gentle bobbing ride on a lazy river. This year, the market has more peaks and troughs than the Storm Runner roller coaster at Hersheypark.

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In 2017, the S&P 500 had just eight days with 1 percent movements for the entire year. As of mid-April, the S&P 500 had moved up or down at least 1 percent on 28 days in 2018. That’s 15 increases – which no one complains about – and 13 drops. Thanks to all the ups and downs, the S&P 500 closed at May 29 down 0.2 percent for the year.

Although the market index is on target for a 10th consecutive year of positive returns, there’s no end in sight to the volatility, and volatile markets are when investors often succumb to loss aversion. This is the tendency for investors to feel the pain of losses more than the joy of gains. Consequently, investors get impatient and sell.

But you shouldn’t let your queasy stomach trick you into making some of your worst investing moves all because of the market’s temporary dizzying swings. That’s a recipe for investor’s remorse. Instead, control your loss aversion and avoid these common mistakes that investors often make in a volatile market.

Thinking you’re a trader. Smart investors know better than to buy and sell in a topsy-turvy market in an attempt to outperform it. Even traders get burned timing the markets, and ordinary investors are unlikely to do better.

Recognize that you are an investor, not a professional trader. “If you are an investor, you are looking for the long-term growth of the market and should be less attuned to the noise of the market, which is what volatility is,” says Morris Armstrong, registered investment advisor at Armstrong Financial Strategies in Cheshire Connecticut.

Checking account values too often. An easy mistake to correct is the one of checking account values too often, which can happen more frequently during volatile times, says David Ruedi, Financial Advisor at Ruedi Wealth Management in Champaign, Illinois. Checking those values daily is like riding “an emotional roller coaster that causes unnecessary anxiety and makes it more difficult to stick to an investment plan,” he says

Long-term investors don’t need to track their portfolios that closely. If you’ve been investing for a while, you understand that markets go up and down, sometimes by a small amount and sometimes not. Just ignore all the market drama and your see-sawing portfolio balance until things settle down.

Selling in a rush after a market tumble. The classic mistake of over-reacting and selling on a down day does more than just lock in losses. It creates another problem: when to buy back in.

Investors get wrapped up in their emotions and panic sell their investments to wait until things get better. “The problem with that behavior is when things are better, prices will be higher,” Ruedi says. “So investors have already missed out on returns they could have easily earned if they had just remained in their seats.”

Ignoring the benefits of dividend-paying stocks. By focusing solely on share price when markets tank, you ignore a portion of the investment return just when you need it the most. “Dividends can reduce price-based losses and provide cash for investing in stocks at lower prices,” says Russ Blahetka, managing director of Vestnomics Wealth management in Campbell, California. Over-reacting to price drops means missing out on the benefit of compounding dividend returns.

Staying on the sidelines. After a market drop, investors are often too afraid to re-enter the markets. Instead, investors stay on the sidelines and store cash “under a proverbial mattress,” says Paul R. Brown, CEO of Clearstone Wealth Management in Liberty Lake, Washington. Over a year ago, Brown helped a business owner sell his successful company, but the owner, fearing a market loss, held on to the proceeds in cash, missing the robust 20+ percent stock market return of 2017.

Thinking cable TV has actionable financial advice. Taylor Kovar, CEO of Kovar Capital in Lufkin, Texas, implores investors to understand that the talking heads on TV are there to gain viewers and entertain, not serve as your financial advisor.

After all, who would tune in if the television experts advised investors to create a sensible portfolio and stick with their strategy through market ups and downs? That would be a recipe for a failing network – albeit a successful investment approach. So don’t make the mistake of basing your investment decisions on the dizzying array of TV financial news and advice.

Taking market headlines too seriously. Although headlines generate market volatility, they don’t affect a company’s strength, says Meghan Shue, senior investment strategist at Wilmington Trust in Wilmington, Delaware. Company fundamentals such as sales, earnings and cash flow drive long-term stock prices. And these fundamentals don’t change when the market falls because of a geopolitical event or other breaking news.

What’s happened in 2018 is a case in point, Shue says. “Despite this year’s volatile start, investment fundamentals have, for the most part, remained sound.”


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Author: Barbara Friedberg
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