I have gone through many ups and downs and learned many valuable lessons while investing in both traditional markets (tradfi) and the cryptocurrency market. Investing is a process not only of making money but also of learning and personal growth. In this article, I will talk about seven important things I have learned from both markets.
Participating in the financial market can be exciting but also full of risks. This is a detailed analysis of seven common mistakes that traders and investors should avoid to achieve success and minimize losses.
1. Displaying Excessive Confidence
One of the most dangerous states when trading or investing is being overconfident. After some wins, one may begin to believe that they have the market under control, which can lead to increasingly risky decisions. This feeling of invincibility causes the market to overlook issues.
Remember that past successes do not guarantee future successes when the market is volatile. Always assess your strategy. Continuously evaluate successes and failures to adjust. Humility and critical thinking are crucial. Do not think that you have understood everything.
2. Greed and Overly Ambitious Goals
Chasing quick riches often leads to not thinking carefully when making decisions. The illusion of instant wealth can cloud the essentials for investing, particularly that accumulating wealth requires time, effort, and strategy.
To succeed, you must be persistent and dedicated to developing your skills. Be cautious when setting expectations. Do not be lured by plans promising huge profits in a short time. Focus on sustainable progress and realize that achieving small, continuous advancements will be more effective than trying to achieve sudden big wins.
3. Overemphasis on Timing on the Chart
Spending too much time analyzing charts may seem like an effort, but the reality is it can have a negative impact. When you use ten screens or spend ten hours, the results may not improve; often it just leads to burnout.
Limit chart usage to a maximum of five hours each day and ensure to take regular breaks. After two hours of continuous focus, productivity typically drops, leading to anxiety and poor decision-making. In effective trading, quality is more important than quantity. A clear mind will help you make better choices than fatigue.
4. Idolizing and Comparing Yourself to Others
Comparison diminishes a person's joy, and in trading, it also reduces one's profits. Watching other traders and trying to use their strategies without understanding them.
Do not trust traders who claim to have discovered the 'Holy Grail' of a strategy. Instead, think about whether any strategy can succeed. While you can learn from others, always reflect on yourself and modify your ideas to fit your situation. Be cautious; personal trading and efficiency with one person may not align with your personality or risk tolerance.
5. Not Adhering to the Plan
One of the fastest ways to incur financial losses is not adhering to the trading plan. Consistency is essential.
Stick to your stop-loss orders and accept that losses are an unavoidable part of trading. It is important to use a methodical approach that includes losses and profits. Not every uptrend will catch up or yield profits. Focus on minimizing losses and capitalizing on profitable trades. Balance is the foundation of the market, so strive to always earn more by adhering strictly to your strategy.
6. Trading Based on Revenge
You may feel bored or frustrated when losing in trading, as if the market is intentionally changing your position. In such situations, the market may act strongly.
If the market continuously moves against your expectations, this is often due to a flaw in your research or methods, not personal grievances. Since revenge trading is driven by emotions rather than rationale, it leads to greater losses. Focus on executing your tactics and improving your financial management skills are what you should concentrate on. Every failure is not a reason for revenge; it is an opportunity to learn.
7. Leaving It to Chance
Without a systematic foundation, relying on intuition or outside opinions will lead to disaster. Gambling is not like trading based on intuition or recent advice. Build a plan and stick to it. Rule-based and consistent trading will eliminate natural factors.
Do not trust vague assumptions or arbitrary 'calls' from others. Instead, make decisions based on research data and carefully planned strategies. Adhering to discipline and organization, rather than making choices based on chance, is a characteristic of successful traders.
Thank you all for reading!
