Crypto Blog: 002 - Mistakes of a Crypto Trader or Investor
Everyone's posting about what's the best crypto to invest in, but honestly, being successful with cryptos is not just about finding the best cryptocurrences. Often, even with the best cryptocurrency to invest in, you could still lose money.
Becoming a trader or investor overnight?
With this whole cryptocurrency boom, and all the craze in the media, everyone seems to fancy themselves as a cryptocurrency investor or similar. The thing is, being an trader or investor, regardless of the what you're buying or selling, is not just about choosing the right thing to buy.
When everything is going up, we look at our accounts, and think we're such good traders or investors, depending on what you're doing. But the reality is that it's much easier to be successful by mistake when there's a big overall uptrend in motion.
I sometimes see people who recognize cryptocurrency as a great investment opportunity, but haven't really learnt much about investing, or they buy and sell frequently without realizing they're trading or speculating, and still call themselves an investor, but haven't spent any time learning to be a better investor or trader.
The result: they end up losing money.
There's a whole lot of psychology involved in investing and trading, and hardly anyone is really talking about it in this cryptocurrency craze. People make ridiculous statements like, "Oh, even if it goes down 70-80%, I'll just buy more!". Realistically, when people see the value of what they own drop by even a fraction of that amount, they're going to most likely do the opposite, and panic sell.
Do you have a plan?
If you really are serious about this, enough to put your own skin in the game, then you owe it to yourself to have a plan before going in. Putting money into something that you read about in a 5-minute article or blog post and then calling yourself a crypto investor is crazy. I don't hold anything against you, but you're doing yourself a huge disservice.
Instead, have a plan. Even if it's just a few sentences. Write it down. Put it paper. Make it concrete. Otherwise, what will likely happen is that you'll deviate from it after a few days, maybe even a few hours! I know this because I've made these mistakes. Most won't admit that they've done that before but it happens all the time. It's human nature. That's why you need a plan.
If you like digital, then at least type a note or something. Keep it on Evernote or something similar.
Learn the psychology
It's probably cliche to say you are your own worst enemy, but it really is true. That's why it's so important to understand psychology, and how things like emotion and fear or FOMO affects you when you're trading or investing. It's always underestimated. A lot of these are simple things, like how we tend to over-manage our trades or investments if we keep looking at them too long, so much so that we make too many decisions, and often jump in an out of something when we should just hold on and be a little patient.
Drawdowns. Are you sure you can stomach the drops? Studies have shown that we tend to overestimate our pain threshold when it comes to drawdowns, and it's those moments when we're most likely to sell at bottoms and buy at tops.
Risk management
I see a lot of people saying that you should just treat your crypto investment as something you can lose completely, but let's be honest. No one really wants to buy cryptos real money that they've worked for or saved up for just for it to go to zero. So then put some risk management into that plan you thought about a few paragraphs above. Being "hopeful" is really not a useful strategy when it comes to these things. Again, you owe it to yourself to do at least this.
Figure out how much you drawdown you think you can take, and then make much less when planning how you'll go about all this.
We focus so much on the investment or trade itself, but what makes an investment or trade so great relies heavily on the person executing it.
No one's immune to making mistakes. But make sure you'll be one who actually learns from them, and becomes a better investor and trader.
Happy trading and investing!