The 15 Top Trading Mistakes people make.
1.Being stuck on past value, not looking to future value: If you rely on judging an asset byits past performance instead of its fundamental potential, you are playing a risky game.Historical analysis definitely has its place, but it’s important to avoid feeling like youmissed your chance to take a position in a given project. For example, let's say that youheard about Ethereum at $500 and you chose not to do anything but now it's over $2500
and you’re feeling like it’s too late or too expensive. You don’t want to buy anymorebecause you have convinced yourself it’s too expensive now, but only because you sawit and missed it at $500, not because of it actually being at $2500. We must evaluate assets according to their true potential and fundamental value rather than the price itwas last year.
2.Confirmation bias: You only surround yourself with what you want to hear and block anything that is contradictory without giving it a second thought. You only follow people that support your favorite coin and only watch content about how it can be the next bigthing without considering any alternatives. Anyone or anything that says the contrarygets blocked and ignored without considering the material and evidence as to why they could be right. You are putting yourself in a bubble to only see what you want to see and make a coin look better than it really is.
3.Hot hand fallacy: You make some risky decisions and they all work out for you. Next thing you know you are hyping yourself up and feel unstoppable so you continue down this path of risky trades without too much worry about what will happen on the next one.This idea is common because those who score a couple winners become over confidentin their ability to trade and dismiss the idea that it could have been lucky or perfect circumstances. This often leads to nasty losses and an ensuing wake up call, so it’s important to always have a plan to mitigate risk even if you are on a hot streak. As the best in the business like to say, “plan your trade and trade your plan.”
4.Misunderstanding Market Cap vs token price: There is a common misconception that some assets like Bitcoin and Ethereum are worth thousands of dollars so that meansany coin can hit the same price as them, but this simply isn't true because different cryptocurrencies have different quantities of token supply. For example, Bitcoin has amaximum supply of 21,000,000 coins while Shiba Inu has a maximum supply of~589,000,000,000,000 coins. Supply and demand factors are certainly worth considering, but because Shiba Inu has trillions of coins, the unit price per token is way different than Bitcoin. Market Capital values provide us with an understanding of the value of all tokens in circulation so that we can make our investment decisions based onthe total project value rather than the unit value.
5.Going down with the ship: Some investments just don’t work out and you cannot win 100% of the time. Some people have a tendency to keep investing more and moremoney into these losing positions while other projects are booming. They are afraid thatthe asset could potentially make a miraculous come back even though you know the money could be better allocated to a new position. Instead of reinvesting it into a different position that truly has potential, you succumb to FOMO (Fear Of Missing Out)that the position could make a recovery and therefore don't want to cut your losses.
6.Rage trading: If you have ever lost then you know it's frustrating and can bring a tide of negative emotion. This can lead you to making a less level-headed decision about your next trade, and maybe even bringing more risk to your portfolio. This process can repeatitself and become more and more extreme until you are practically just gambling.Sometimes the best thing to do is to walk away and take a deep breath so that you can trade another day and collect yourself.
7.Getting cut by the double-edged sword: Losing always hurts more than joy of winning,and this can cloud your judgment. When an asset is falling in value and we see more bad news come out about the project, it could just be a good idea to cut our losses and move on, but this doesn't always happen. On the same note, some folks are burned by a coin in a sector like the metaverse and take an oath to never invest in the metaverse again because it could be a scam. This is a common fallacy and every new decision needs to be weighed on its own merits. This means that just because something bad has happened in one coin it doesn't mean that it has to transfer to another coin in the same sector. Additionally, addressing this blind spot may come down to redefining how you choose your next project and adding in additional criteria to your vetting process.
8.The bored trader: Following mainstream assets in a slow market can be boring at times,so a common mistake happens when traders decide to look towards extra high-risk small caps for volatility instead of investing in what they know. Everyone has a different trading style and risk tolerance, but if you have no idea what you are doing and decide to make this decision out of boredom, you could find yourself getting wrecked, especially if a bear market comes and the low caps you invested lose 90% or more of their value. Be patient and think through everything regardless of the speed of market cycles.
9.Judging a book by its cover: The crypto industry is in a place where many projects have massive marketing budgets that allow for widespread exposure, but this doesn’t necessarily mean something is a good investment. Often times people read what is fed to them from marketing teams without diving into the actual project itself, only to find outthat it's not what they thought it was. Marketing is important but make sure the project isactually strong first because there is a lot that goes into running a successful project.
10.Over-valuing your own positions and becoming emotionally attached: A common mistakeis made when people over value what they own, and is especially popular with single-coin maximalists. Whether it’s Bitcoin, Ethereum, XRP, or even Dogecoin,maximalists often see their bag as more valuable than it truly is, largely due to the fact that they have done a ton of research on the topic and have fully entrenched themselvesin the community of a given project (see “confirmation bias”). It’s always wise to take a couple steps back and ask yourself “If I had no positions in crypto, would I purchase this amount of this asset today?”
11.Blindly following the leader: It is easy to follow someone that we view as an expert and blindy do what they say and invest in what they invest in, however at the end of the day,they are just a person and their investing time frame and goals are probably different from yours. Always do your own research and evaluate many sources of information before making any investing decision. No matter how experienced someone is, they can still be wrong.
12.Believing that all stories are success stories: Have you ever heard of someone moving to LA or NYC to “make it big”? The odds are high that you do, and some people do find their success. But, how many others fail to find the glory that they heard about and chased? In the same way, people hear about someone making 1000x gains or millions of dollars on a miscellaneous token and then believe that they can reproduce the same success. This is an easy mistake and it takes a fair amount of self-awareness to play to your strengths while also being realistic about the potential outcome.
13.Believing in viral social media marketing: People love a good story and it helps us comprehend more complex ideas in today’s world. Social media causes simple ideas to spread like wildfire and, as a result of this, some stories can cause cryptos to catch fire.It even happens in stocks with Tesla, Gamestop, and others. These tend to be malicious“pump-and-dumps” that have a viral story, but nothing truly valuable under the hood.A void at all costs!
14.Bandwagon fallacy: Following what everyone else is doing isn’t always a good thing. It often means that you are late to the party and likely didn't do much of your own research. It’s easy to fall victim to the idea that certain people are talking about and investing into an asset so it must be a good investment. In reality though, you should always do your own research to determine if something is worth putting your money intoand whether or not it's not just a fad.
15.Not acknowledging luck: If you invest $100 into a longshot bet and it turns into $100k,then you may deserve a congratulations, but it’s also important to recognize the role that luck has played and the fact that this doesn’t happen regularly. Just because you wonbig with the odds against your favor doesn't mean that it was a smart thing to do. Making decisions with the best odds and strongest probabilities is the smartest way to trade