“Trading is not everyone’s cup of tea. Many novice traders lose most of their assets within a few days of trading and there are solid reasons for these failures. Improper Research, high leverage trading, poor risk management, trading irresponsibly and Going Big are some of the reasons that bring failure to these investors.”
Crypto Trading Basics
Crypto trading is considered to be the most risky form of trading due to extremely high volatility of the crypto assets. The prices of crypto assets move up and down very quickly and also provide the chance of quick profit as well, which brings more and more novice traders to the industry. Out of all the novice traders that enter the crypto market 99% lose and this high percentage of failure is due to various trading mistakes made by them.
Reasons for Failure in Crypto Trading
The FOMO (Fear Of Missing Out) is at its max in the crypto industry and it leads various novice traders to jump into trading and buying cryptocurrencies without the proper research. This leads them to buy the currencies that are more of a scam or a pump and dump scheme. Due to improper research 9 out of 10 times these novice traders are able to buy a crypto when it has already been pumped and thus incur losses when the crypto is dumped. Thus, proper research of the crypto project must be done before trading in such assets.
The leverage trading in crypto has entered the mainstream traders and this increases the risk of losing to a magnitude of the leverage taken. Most of the times the novice traders indulge in over leveraging which results in liquidating all the funds they have. To prevent failure, the leverage must be taken to a magnitude that does not dent the funds of the traders even if lost. Low profit, less loss should be the strategy.
Poor Risk Management
Novice traders are in the habit of playing it risky and usually do not take advantage of various risk management tools available in crypto trading. Stop loss is one such risk management tool that can prevent large losses during the volatile market. Also, such traders are not in a habit to devise a risk management strategy and play it recklessly and thus lose completely.
Taking Positions that are Large and Risky
Putting a large percentage of the portfolio into a single trade is another big reason that leads to failure in crypto trading. Traders are in the habit of putting more than 10% of their funds in a single risky trade in order to reap high profits but end up losing 10% of their portfolio. Experts advise not to put more than 1% of the funds in a single trade. This will ensure that the losses incurred will not make any dent to the portfolio and your chances of recovery of a small loss with a bigger leftover fund base will be far better.
Disclaimer: The article should not be considered as any financial advice. It is advisable to conduct thorough research before investment.
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