So, you’ve made the smart choice to take control of your financial future, rather than relying on so called “professional” money managers or financial planners who are mostly just there to take a percentage of your money with their incentive placed before yours.
The floodgates have now opened for investment potential.
2 options exist for the trader: the boring and low potential safe route, and the more exciting road of high risk but high reward.
The second option is ideal for those who want to maximize profits, but you need to be aware of the common fallacies first which we will lay out further along in this article.
Safer options include fixed rate CDs and bonds or slow and steady index funds that will pay out with low maintenance fees and basically zero mental effort.
However much money you want to put into safe options is up to you, but you know that top dollar goes to the risk takers, those who actively trade money rather than stashing it away at a small percentage.
Most CDs or bonds pay out as low as 2%, annually with 3% being considered high.
You notice that many stocks are moving at 2% daily, and it is with this volatility that you can profit.
For those who watched the incredible bull run of 2017 in cryptocurrency, especially towards the end, we saw investors regularly making 50, 100, even 500% daily returns from the volatility of the market.
Volatility is a double edged sword, and its downside can wreck you just as badly as its upside can reward you.
One of the reasons that people fail when trading is due to psychological traps that beginners are particularly susceptible to.
Here we lay out 5 of the most common traps that seasoned traders should also look out for to make sure they’re in line for future success if they aren’t yet where they want to be in their financial goals.
Buying the hype
Often, you will see coins that are constantly promoted by many mysterious new people in reddit threads or through telegram or discord. More often than not, the coin isn’t being promoted because it’s a good project to invest in, but because it’s being “shilled”, i.e. tastelessly promoted for pure sake of short term profit for those who are involved in the initial pump and dump.
The biggest red flag to look out for is no real technology beyond basic buzzwords like “scalable” “fast” and “revolutionary protocol”.
A better alternative to buying the hype is to “Buy the rumor, sell on the news”–although not always true, it gives you an idea that hype isn’t always correlated with high prices and is a good rule of thumb sometimes, certainly more so than simply buying the hype.
Chasing a bull run too late and selling out of fear at the bottom.
For the same reason that people buy the hype, people will make the mistake of buying towards the top and a similarly costly mistake of selling at the bottom.
Both of these events happen out of crowd mentality, which is strongest when many people are participating. Ironically, when the number of people participating becomes largest, it is the worst time to do what others are doing because it often is an indicator that times will turn.
Similarly, when a large amount of people are selling out of fear, it’s often a good time to either buy or to hold on to what you have that people are selling.
As Warren Buffett said, “Be fearful when others are greedy, and greedy when others are fearful.”
However, don’t think you can predict tops and bottoms. One of the most common ways people think they have this ability is in the next psychological mistake that many traders make.
Thinking a long streak of red means green is bound to come (and vice versa)
In roulette, many novice gamblers increase their bets on the opposite color when one color has had a streak of wins.
However, just because red hit 5 times in a row doesn’t mean that the 6th time it’s much more likely that black will hit.
Red and green share the equal percentage, roughly 47% each time.
Each next chance has no memory of the next time, it’s always 47%.
Similarly, the market has no memory of the previous second or minute. The market is only somewhat predictable in complex patterns like candlestick charts and volume indicators that take a while to learn how to accurately act on.
Trying to make up for losses by raising stakes on the next investment
One simple piece of math that will demonstrate how much of a whole you’re in when you’ve made a financial loss in your investment is the fact that if you make a 50% loss, you need a 100% gain just to get you back to the point you’re at when you’ve made a loss. A lot of people don’t do this mental math and think a 50% loss followed by a 50% gain will get them back to where they started, but they’ll still be 25% in value away from the point they’re trying to recoup.
Regardless of whether you know that math or not, due to the common human psychological of loss aversion (which means that losing something you already have is more painful than making an equivalent gain) you will irrationally pursue the profit by often doubling down on your bet the next time around. You’re also more likely to act impatiently and jump the gun on something you didn’t do much research on.
Avoid this trap by having a dollar amount that you stick with regardless of whether or not you’re coming off of a loss so you don’t open yourself to a larger potential loss. Don’t let the negative emotion that results from a loss, or even the positive emotion that results from a game change the amount of your next investment.
Becoming emotionally attached to a coin
Sometimes, people have a coin that performs really well, and they become fanboys of it. The moment the coin has bad news or shows poor performance, they don’t view the coin objectively because they became attached to it.
Don’t allow emotion to blind logic. This is probably one of the biggest factors contributing to success or failure when it comes to investing.
One of the best ways to take the emotion out of the equation is with technical analysis.
You have to learn the technical analysis, which includes techniques like Japanese Candlesticks, moving averages, and bollinger bands.
So many strategies are out there that it will take a while just to learn them, let alone know how to implement them, and it takes years and many financial mistakes for traders to effectively utilize technical analysis.
Even when you learn the technical analysis, money never sleeps, and especially in the world of cryptocurrency where price spikes can happen in the dead of the night, you’re often sleeping through the best opportunities.
One of the quickest and most foolproof ways to profit from market volatility to using technical analysis is with a well-made trading bot.
Not only will a trading bot eliminate the need to invest time and =losing money during the learning curve of reaching potent technical analysis, but a bot will be running 24/7, giving you an advantage even if you are an advanced trader who wants to be sure he can literally catch opportunities as he sleeps.
A lot of questionable trading bots are out there on the internet, but Gun bot is one of the best options out there. It has many happy customers and helpful support. Check it out here.