Trading is a word more often associated with gambling.
Many people imagine the financial markets as a giant casino where everyone wins or loses by placing bets. In fact, many traders across the world are actually gambling without realizing it.
The dictionary defines gambling as:
“taking a risky action with the hope of a desired outcome.”
But trading is more mathematical. It requires good subject knowledge and experience for attaining success.
Sure, gambling can earn you more money if you are lucky, but at the same time, there are high chances that you will lose everything you made.
Trading is a system of processes and not a game. If you understand the system well, you get rewarded. It allows you to make informed decisions and take calculated risks.
Here is a list of trading mistakes done by someone who confuses gambling with trading and goes broke during the process.
1. Lack of Trading Plan
“One who is failing to plan is planning to fail.”
Planning is the first step to succeed in anything.
You are required to have a plan before you start trading. Having a plan includes deciding when to buy and when to sell, the amount of money you can invest as capital, and your risk tolerance level.
Novice traders usually dip their toes without having a healthy trading plan.
They trade like it is a game of winning or losing. They are even content with losing for a long time, thinking that one win may compensate for all the losses.
Trading without a plan is merely gambling.
You do not know where you are headed and what is your course of action, but you still go through with the hope of earning enormous returns.
2. Forgoing Fundamental Analysis
Most new traders start by picking up the most sought after cryptocurrency and trade in it solely for long periods. You may even earn good returns for some time.
But suppose you keep trading blindly without analyzing the coin.
In that case, there are chances that your portfolio will bleed red sooner or later when the currency value tanks steeply. Fundamental analysis can enable you to make informed decisions and understand when to hold and when to fold.
Before you invest in crypto, it is vital to learn about:
- The characteristics of the coin
- Future outlook
- The team or company behind the coin
- What it is trying to solve etc
Based on these parameters, you can list the coins that suit your profile and start building your own trading system around those coins about which you are fundamentally convinced.
3. Risking More Than You Can Lose
The enormous returns yielded by cryptocurrencies attracts investors to make the most of it.
More often, hoping to make life-changing money, people tend to invest more than they can afford. This could lead to severe troubles, especially if you borrow money for investment.
The golden investment rule, in general, is to always invest what you can afford to lose only. Even when the market slumps and you lose your entire corpus, it should not affect your current lifestyle.
Before you start trading, it is advisable to enter with a small amount of money.
This way, any losses made in the initial period will not affect your portfolio, and you will learn the ways of trading before putting in real money.
You can start by investing a minimal amount of money and see which trading system suits you best. Traders using, CoinSwitch Kuber platform can start with a minimum investment of 100 Rs.
4. High Expectations
Everyone indeed invests with a single motive of profit, and anyone who anticipates otherwise is just being foolish.
While it is not harmful to want to earn profits from an investment, it is dangerous to want to win all the time. Every trade may not be a success.
The mistake every new investor makes is that a single loss in the market makes them lose faith, and they tend to quit trading.
If you want to succeed in trading, you need to look at your portfolio in its entirety.
Making it a habit to view your profits and losses in terms of % will give you a clearer picture of your investments. Keep your expectations very low and keep at it; the returns will follow if you do it right.
5. Paying High Brokerage Fee
The cryptocurrency market is decentralized, and the crypto exchanges are self-regulated. Many platforms enable investors to trade in cryptocurrencies. But the brokerage fee may vary from one platform to another.
Paying high brokerage fees can eat most of your investment before it grows. The key is to choose an exchange(broker) that charges low trading fees and has high liquidity and volume.
This means all the money you put aside belongs to you, and no part of it gets deducted as fees.
It may be smart to learn from your own mistakes, but it is wise to learn from others mistakes. Be a shrewd trader, learn from others mistakes and make none of your own.
We would love to know your experiences in trading too. If you made a learnable mistake or if there is something you learned from other’s mistakes, feel free to tweet it to us @CoinSwitch
Happy Trading Folks!
[su_note] KuberVerse is an educational initiative. Anything expressed here directly or indirectly is not investment advice. And we ask you to do your own research before investing. [/su_note]
Disclaimer : Crypto products and NFTs are unregulated and can be highly risky. There may be no regulatory recourse for any loss from such transactions. The information provided in this post is not to be considered as investment/financial advice from CoinSwitch. Any action taken upon the information shall be at user's own risk.
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