Experts explained why many newcomers to the crypto market are plagued by failures and what rules should be followed so that transactions are profitable
Novice traders can make serious mistakes that eventually lead to losses. The experts of RBC-Crypto explained what to do when trading cryptocurrencies in order to minimize risks.
Other people ‘s ideas
Many newcomers start trading cryptocurrencies using the strategies and ideas of other traders, but this is unlikely to lead to anything good, says Artem Deev, head of the analytical department of AMarkets. According to him, the essence of the trader’s work is to analyze the market, make their own forecasts and search for their confirmations.
“If you are confident in the growth of an asset, buy and hold. I am sure that it will fall — sell and transfer to other tools. At the same time, we must remember that everyone can have mistakes, as well as losses and profits,” the analyst explained.
When trading cryptocurrencies, one cannot be too self-confident, since the situation on the crypto market is changing every second and the trader should be ready for these changes, says Vladimir Smetanin, CEO of the Swiss financial company Newcent. He recalled that cryptocurrency is a very volatile asset, and the digital asset market is practically unregulated. Therefore, investors should be restrained and invest a small part of their portfolio in digital currencies, Smetanin added.
Too active trading
Having entered the crypto market, newcomers are trying to catch his every move and trade all promising coins, but this is the way to a quick burnout, Nikita Soshnikov, director of the Alfacash cryptocurrency exchange service, is sure. He explained that active trading during the day (intraday trading) is suitable only for a limited circle of traders who are well versed in technical analysis, feel market signals and understand that crypto assets can move contrary to traditional ideas about market mechanisms.
“With such intensity, it is difficult for beginners to maintain the quality of transactions, and the risks of succumbing to emotions are very high,” the expert noted.
It is more expedient for novice traders to make transactions not too often — at least once every couple of days or a week, says Soshnikov. In his opinion, it is easier to predict on such a planning horizon, since it is possible to move taking into account the general trend in the market.
Technical analysis is not a guarantee
Technical analysis can give an idea of what is happening in the market at the moment, but it does not include fundamental factors that can greatly affect quotes, Deev explained. According to him, technical analysis helps to make forecasts based on previous dynamics.
“Technical analysis does not give forecasts in a situation when mining is banned in China,” the analyst noted.
Technical indicators work well in conditions of market stability, explained Deev. He added that a trader should always take into account the risk of a complete change in the situation due to some news.
At the end of May this year, the cost of bitcoin per day decreased by more than a third after the Chinese authorities banned organizations from providing services for storing and managing cryptocurrency and called for a complete ban on mining. The situation was repeated in early September. Then bitcoin fell in price by 16% in a day after a complete ban on conducting cryptocurrency transactions in China.
Compensation for losses
After exiting a losing trade, a trader may have a desire to compensate for the loss by entering a new position, but this is the wrong goal, Soshnikov believes. He advised novice traders to try to turn off emotions and work with a “cold head”.
“The goal should be to get profitability: some deals are in the negative, some are in the plus, but the main thing is that the overall balance increases,” the expert noted.
If the overall balance decreases, it is worth taking a break and conducting a thorough analysis of transactions to determine the causes of failures, advised Soshnikov.