Trading is one of the most profitable and direct activities to access large sums of money. However, not everyone takes it seriously and heads to the platforms without clear goals. To avoid falling into that last group, Binance published an article on the 4 mistakes that lead directly to failure in trading operations.
Failure to trade, be it cryptocurrencies or any other asset, is very common. In this case, the aphorism that all experts were once novices is valid. It is precisely the most inexperienced and new to the business who suffer the greatest losses. Most drop out and a select group persevere and learn from mistakes to become profitable traders.
It is a tough process and full of momentary losses. However, expert advice is the best help to minimize those losses. The most important thing to assume when starting in this form of trading is that it is a serious activity. It should be taken with discipline and not as fun to place bets.
What are the top 4 mistakes Binance identifies?
The mistakes that inexperienced traders can make are many, but there are four that Binance says are the worst. Therefore, they recommend being attentive to them so as not to be victims of disappointment. These are the four mistakes of beginning traders that lead them to failure:
Greed is one of the worst advisers for traders, especially in the world of cryptocurrencies. Being an extremely volatile market, using excessive leverage is the surest way to lose everything. Some traders, after completing a good trade with high leverage, want to repeat it. This is the time where the mass extinction of beginning traders occurs.
Leverage can generate large sums of money, since it multiplies the amount several times. At the same time, if the price movement of the asset goes in the opposite direction to that bet, the magnitude of the losses is large.
No one can get rich overnight from cryptocurrency trading. The exaggerated leverage strategy is terribly unsustainable. “It’s like aiming to hit a home run every at-bat,” Binance explains in baseball jargon the first of four mistakes that lead traders to failure.
Really successful traders, the post explains, never use leverage that goes beyond their limits or their strategy.
Weak risk management
Not accepting partial defeats and wanting to recover what was lost quickly to continue a good streak is a false step that costs a lot. Improvisation and blind gambling do not spare desperate traders. For this reason, responsible risk management is of vital importance.
Once the capacity and loss tolerance that can be had in a trade has been drawn, tools such as Stop Loss must be used. With this, operations that do not go well are automatically closed. At the same time, greater losses are avoided and the trader’s account remains alive to continue trading.
It is not the same to be at a disadvantage and retreat to reorganize than to fight a losing battle to the death. In the latter case, there will not be a second battle for your funds.
Consequently, not using the tools that are available puts the trader’s funds in unnecessary danger. Thus, irresponsibility towards one’s own funds with poor risk management is the second of the four mistakes that Binance advises against committing.
Four are the mistakes that can lead to failure in trading, according to Binance. Learn to know them and avoid them in your operations.
Long and risky positions
The exchange’s portal ensures that many traders apply the daring slogan “Go big or go home” when opening their operations. In that sense, they are carried away by the adrenaline instinct. Thus, a position of 10% can last for a long time, which reduces the ability to make other short and effective plays.
Parallel to the time it takes, it is very likely that it will end badly. It follows that this way of operating is contrary to logic, underlines the post. Putting all the money in a single 10% operation is something that any investor, even the most expert, thinks very well. Many seasoned traders prefer to avoid this type of play.
For beginners, it is vital to stay alive to accumulate the forces necessary for growth. 1% or 2% would be more reasonable plays, although in the first steps they do not mean great results. Once with high amounts, after a patient and disciplined accumulation process, 1% will be more profitable.
While one of the four mistakes that Binance highlights, is thinking that a 10% long bet can lead to a winning streak.
Lack of responsibility
As already noted, trading should be considered a serious undertaking. Therefore, maturity, discipline and responsibility must be put first. Self-control of emotions is one of the skills that must be trained when trading.
This is why one of the surest paths to failure in trading is to operate compulsively.
In his book “Thinking, fast and slow”, Daniel Kahneman affirms that thought is divided into two models. Model 1 is irrational and is the one we use 90% of the day. With it, the brain saves energy and helps us to accomplish tasks that we do not even remember at the end of the day. Model 2 is rational and is activated when an extraordinary situation occurs.
It can be illustrated with a brief example of when we drive the car on a familiar and routine road. At that moment our brain uses model 1. But if an unusual event such as an accident at a distance suddenly happens, model 2 is activated.
In trading, model 2 must be exercised. The moment the trader feels exhausted or prey to the emotions of model 1, he must withdraw.