Take Heed to These Investing Lessons in Crypto Trading: How to Cut Losses and Let Winners Go Big
One thing that crypto traders tend to forget is how to play it safe during their trading sessions. Cutting your losses and focusing on the winning trades is one of the most important rules for every trader out there. However, the rule becomes a lot more important when it comes to trading cryptocurrencies.
The idea is simple, and traders are already well-familiar with it — you want to focus on the good, profitable trades, and exit the positions that can damage your capital. This should be done as soon as traders notice signs that the trade is about to take a turn for the worse. Simply put — don't risk it, and cut your losses as early as possible.
But, if the rule is already obvious, why mention it at all?
The reason for mentioning it is the fact that traders tend to forget this and experiment. It is easy to forget that it is important to hold the emotions in check during trading, and no one can do it all the time, no matter how experienced the trader is.
It is in every person's nature to try and make gains, although this urge often leads to traders being unwilling to cut their losses early. Instead, they keep hoping that the situation will remain positive for their trade, even if there are signs that things are about to take a turn for the worse.
Being able to detect these signals and adjust your trade accordingly is what separates a successful trader for the one about to experience losses. However, despite knowing this at some level, traders often take unnecessary risks and experiments which, more often than not, result in losses that could have been avoided.
What Can be Done to Avoid Losses?
What makes experienced and successful traders different from others is their ability to look at new information and apply the knowledge without snap judgment. This leads to calculated decisions that only have one goal, which is to bring profit and avoid losses.
In some cases, this ability comes from a particular type of personality, and successful traders have managed to sharpen their skills with experience and thorough research. For others who tend to make snap decisions that usually end up bad for their trade, this type of behavior can be enforced by following a certain set of rules.
After establishing these rules, traders should always stick to following them, which will prevent them from pursuing a bad trade in hopes that it will turn out well. Of course, the rules will not work 100% of the time, and no trader can avoid mistakes, no matter how much experience or what type of personality they have. However, they will help with sharpening your trading skills to a point where unsuccessful trades will be significantly reduced.
One of the rules to remember is that trading and investing are not the same. In fact, they can be considered opposite methods of making a profit. Investing, for example, revolves around holding the coins for a long period of time which often includes years. Investors buy coins when they are cheap, but only if they expect them to reach a high value in the future. This method heavily relies on hope, which is something that traders themselves must never do.
This leads to the second rule, which is to remember that you chose to be a trader. This is another mistake that traders tend to do, and as soon as their trades go south, they refuse to give up on their coins. Instead, they start thinking about the potential for the long-term profit, which is what eventually leads to disastrous trades. In other words, if the trade turns out bad, cut your losses and move on.
Next rule to keep in mind is not to try and pursue the funds you just lost, especially not in the same market. Doing this is caused by emotions, and using emotions to fuel your trading decisions will only lead to an even greater loss. In cases of big losses, traders are advised to distance themselves from the market for a short period, regain their composure, and return when they are certain that they can handle new trades with a clear head.
Next thing to consider is leading a trading journal, which may help with learning more about yourself, as well as your trading tactics. By writing down the details of trades, your feelings about it, as well as motives that caused the desire to make that specific trade, you can later reflect on these details and determine what went wrong, in case you suffer losses. That way, you will grow as a trader, come up with new rules that will reduce the number of bad decisions even further.
Experiencing a loss is not the end of the world, and even the most experienced traders make mistakes. However, in order to have your gains larger than your losses, it is important to remember how trading works and how you should act in these situations.