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Six errors of novice traders. We tell how to avoid them
The material was prepared for educational purposes and is not a guide to trade. FORKLOG is not responsible for the investment decisions of readers.
Trading go for easy money. It seems to beginners that it is easy to trade: I looked at the schedule, pressed the button and earned. In fact, 70% of traders lose money. Moreover, it is not a matter of knowledge of techanalysis, but in common errors associated with emotions.
Together with the Exmo cryptocurrency exchange, we talk about six typical errors in trading and advise how to avoid them.
Buying at the last moment of growth
Beginners often buy cryptocurrency at the end of the upward trend life. Their behavior is illustrated by the “cheat sheet Wall Street”. She explains the emotions of the average trader during the stages of the market cycle:
- At the beginning of the trend, the trader does not believe in growth – fear is stronger than greed;
- In the middle of the trend, he regrets that he did not buy before – fear and greed are balanced;
- At the end of the trend, the trader enters the position – greed is stronger than fear;
- The trend takes place – the trader loses money.
“Wall Street cheat sheet” on the example of the BTC/USD schedule on EXMO
Why is this happening: cryptocurrency prices are moving randomly. This was written by Bill Williams in the book “Trade chaos”. According to him, 7 out of 8 cases of price by 1% run out of rollback. Only one of these movements begins a new trend.
Experienced traders enter the position with each such movement. They hope that the profit from one trend transaction will block losses of 7 unsuccessful.
Beginners miss the beginning of the trend: they are afraid of rollback and are waiting for favorable conditions. But at the end of the trend they buy an asset and create hysteria – fluctuations in the price inside the bar with a new maximum.
Signs of hysteria August 6: a new maximum with a tail and a transaction with a volume of up to $ 1000
Large players are waiting for the start of hysteria. At this moment, they sell their assets to greedy beginners and leave the market. Traders who bought an asset from professionals incur losses.
How to avoid error: do not enter the market with signs of hysteria.
Turning a position
Imagine the situation: a beginner sees a signal and buys cryptocurrency. Then the price of the asset drops. The trader decides that he was mistaken in the analysis. He closes the purchase and opens the sale.
If the price takes place again, the trader again turns the position. With a correct signal, the trader pays the commission four times and receives a loss.
The trader turns the position due to small price fluctuations
Why is this happening: beginners are afraid to lose money and perceive paper losses too emotionally. They confuse micro -depositism with the beginning of a new trend and constantly turn up positions.
How to avoid error: switch the schedule for a longer period. So you will not be distracted by minute fluctuations.
Bill Williams advises belongs to each transaction as a purchase of a lottery ticket. The ticket price will be the most acceptable loss. In other words: Hold the deal until the stop-loss is triggered.
The obvious stop-loss
Typically, traders install stop losses for the recent [Simple_toooltip Content = ’’ highest and low price values ’] extremums [/simple_tooletip] of the market. In this case, prices often break through extremums, and then unfold in the right direction. In such cases, traders do not make a profit: Stop-losses worked.
Punching of recent minimums with continuation of growth (BTC/USD schedule for EXMO)
Why is this happening: Large players pushing the price in the right direction with the help of trading volumes of private traders. If newcomers in the crowd go to the purchase, professionals break their stop losses and push the price up. After that, newcomers buy an asset again and contribute to further price growth.
July 5, Bitcoin broke the last minimum and provoked traders for further purchases
How to avoid error: do not put stop-losses behind extremes, as well as obvious levels of support and resistance.
Trader Barry Berns advises to install stop losses at a level where there is no reason to hold the position. For example where the pattern will lose its strength.
Too big position
The traders have a rule: in the transaction there is no more than 2% of the deposit. Beginners interpret it incorrectly and allocate 2% of the amount in the account, usually about $ 20. You can’t earn money even with a strong trend. For example, with an increase in bitcoin by 5%, the profit will be $ 1.
Most likely a beginner will want to earn more and increase the size of the position. If the deal is unsuccessful, it will lose most of the funds. Therefore, the trader will hold the position to the last: suddenly the market will turn around, and the loss will turn into a profit?
Why is this happening: newcomers want to make a lot of money quickly. They do not use the rule of 2% and lose the deposit on several unsuccessful transactions.
In fact, the rule of 2% reads: put the stop losses so that when triggered, lose no more than 2% of the deposit. Then you will have money for new transactions even after a series of failures.
How to avoid error: pick up positions to lose no more than 2% of the deposit when triggered by stop losses. For example, with a stop-loss at a distance of 4% of the entrance point, you can use half of the deposit.
Attempts to recoup
Beginners respond painfully to loss of money. After an unsuccessful deal, they try to recoup and “return their”. Traiders fall into excitement: increase the size of the position and enter the market under the influence of emotions. And as a result, they lose more money.
Why is this happening: The trader is too emotionally related to losses and instead of trading plays roulette.
How to avoid error: do not perceive losses as a personal insult. The market behaves randomly. Even the best trading strategies do not guarantee 100% profitable transactions.
Lack of patience
Beginners often close profitable transactions with minimal profit: usually on the first rollback during the trend.
For example, a trader buys bitcoin. The price grows by 5%, and then falls by 2%. The newcomer wants to protect paper profit and closes the position. After that, Bitcoin continues to grow, but the trader cannot earn on this.
Why is this happening: newcomers perceive unrealized profits as earned money, and its reduction as a loss. They close positions during kickbacks and do not earn on large movements.
Traders save unrealized profits. After kickbacks, Bitcoin continues growth (BTC/USD schedule for EXMO)
How to avoid error: Remember that prices do not move in a straight line. In any trend there are kickbacks. To get maximum profit, wait for the start of hysteria and leave the market with large players.
The earnings of the trader depends not only on the ability to analyze graphs and news. In trading, personal qualities are important: calm, patience and prudence.
Even experienced traders are not safe from errors. But there are several rules that will help beginners make mistakes less:
- Do not enter the market during growth or fall, wait for a rollback or temporary Flet;
- Do not close and do not turn the position with a slight loss, instead set the stop losses;
- Put the feet away from extremums, so they will not hook them with a false breakdown;
- Choose the size of the position so that in an unsuccessful deal to lose no more than 2% of the deposit;
- Do not try to recoup after losses, these are the costs of conducting a trade business;
- Do not be afraid of kickbacks, falling by 1% does not mean the end of the trend.
Remember: in trading it is important to think, not feel. To worry less due to losses, do not trade for money that are not ready to lose.