The cryptocurrency market attracts many investors due to its high volatility and high returns, but it also comes with extremely high risks. The following are six common taboos in cryptocurrency trading; violating any of them may lead to significant asset depreciation or even total loss. Investors must take heed, optimize strategies, and mitigate risks.
1. Trading futures without setting stop losses
Risk: Futures trading comes with high leverage, and price fluctuations can be magnified several times. If you do not set stop losses, once the market reverses, it may lead to massive losses or even liquidation.
Advice:
Before opening a position, always set a stop loss and adjust it dynamically based on market fluctuations.
Stop loss levels should be set reasonably based on your risk tolerance and market trends, avoiding overly aggressive or conservative settings.
2. Not knowing when to take profits after making money
Risk: The cryptocurrency market is highly volatile, and profits can quickly turn into losses. If you do not take profits in a timely manner after making money, you may miss out on profit opportunities or even face a loss of profits.
Advice:
Set clear profit-taking targets, and withdraw partially or fully once the target is reached.
Use a partial profit-taking strategy to lock in profits while retaining some positions to respond to potential further increases.
3. Taking profits too early in a major market trend
Risk: In a major market trend, the market trend often has persistence. If you take profits too early, you may miss out on larger profit opportunities.
Advice:
In a major market trend, use a trend-following strategy and let profits run.
Combine technical indicators (such as moving averages, MACD) to determine if the trend has ended and avoid exiting too early.
4. Counter-trend trading
Risk: Counter-trend trading refers to holding positions in the opposite direction of the market trend and expecting a market reversal. This behavior often leads to increasing losses and ultimately liquidation.
Advice:
Never go against the market trend; trading with the trend is the core principle.
If you make an incorrect judgment, immediately cut losses and exit to avoid emotional trading.
5. When the market is in a waterfall decline, always thinking about catching a rebound or bottom fishing can lead to being trapped.
Risk: Blindly bottom-fishing or trying to catch rebounds during a market crash is extremely dangerous. The market bottom is hard to predict, and early bottom-fishing may lead to funds being trapped.
Advice:
Stay calm during a crash and do not rush to bottom-fish.
Wait for the market to stabilize and show clear reversal signals before considering entry.
6. Always thinking about shorting at the peak during a surge
Risk: Blindly shorting during a market surge is equally dangerous. Market sentiment may push prices higher, leading to short liquidations.
Advice:
Do not try to predict market tops or bottoms; the power of the trend often exceeds expectations.
In a bull market, going long with the trend is safer than shorting against it.
Additional Taboos:
7. Over-leveraging
Risk: While high leverage can amplify profits, it also magnifies losses. Overuse of leverage may lead to liquidation.
Advice:
Control the leverage ratio; it is recommended for beginners to use low leverage (e.g., 2-5 times).
Adjust leverage according to market volatility and your risk tolerance.
8. Emotional trading
Risk: Emotional trading (such as fear, greed, or lucky thinking) can lead to poor decisions, increasing the risk of losses.
Advice:
Develop a trading plan and strictly adhere to it, avoiding emotional interference.
Pause trading during periods of high emotional fluctuation, and operate calmly afterward.
9. Blindly following the crowd
Risk: Blindly following market trends or so-called 'insider information' can lead to buying at high positions or stepping on landmines.
Advice:
Think independently and deeply research project fundamentals.
Maintain a skeptical attitude towards unverified information and avoid following the crowd blindly.
Summary
Cryptocurrency trading is a high-risk, high-reward investment activity. Investors must strictly adhere to trading disciplines and avoid the above taboos. By setting stop losses, taking profits reasonably, trading with the trend, controlling leverage, and managing emotions, one can survive and profit in this market in the long term. Remember, preserving capital is always the top priority, and avoid losing assets due to momentary impulses or greed.
