Risk of trading and investing in cryptocurrencies
On the surface, day trading, swing trading or scalping cryptocurrencies looks like it should be easy. Jump in and out of trades as the price moves, make a little profit and repeat the process. Unfortunately, many dangers are lurking in the wild west of crypto-markets, dangers for all kind of traders who are inherently unaware of these dangers and how they can drain your digital assets or fiat.
Most new traders in crypto are enthusiastic to pull the trading trigger after watching a random youtuber boast their strategy and profits while promoting their referral link - link which the youtuber won't disclose as being his primary source of revenue-; the virgin trader pulls the trigger, slowly gains confidence along a few winning trades without realizing that the trend, the market momentum/sentiment facilitated his wins... Now, he/she is overconfident in his trading abilities and blindly follows the biases of his initiating youtuber, thus, taking more risks, putting more in next positions, then, sadly, brutally, he/she wakes up one day to realize that his/her position is down 50% because of cascade liquidations while he/she was sleeping dreaming of lambos.
It has to be said that the new and most experienced crypto traders are unaware of the disgraceful orgy between crypto-youtubers, exchanges chasing liquidations, shameless paid promotions by crypto news outlets and whales manipulations.
The crypto-trading game is rigged with a greater magnitude than the stock market and Forex, survival and profitability require psychological discipline and strict risk management to preserve capital; not having risk management protocols in place, or having an incomplete risk management strategy is the mistake pulling new traders who are usually optimistic about their trading skill , which can lead them to overlook important risk management steps.
Furthermore, your broker is the biggest trade you will make. You are depositing all your capital with them, and yet many traders don't bother to research their broker until there is a problem.
Common broker problems include scam brokers, which are typically located outside first-world countries, although scam brokers can pop up anywhere. Scam brokers make it very hard or impossible for you to withdraw your money and any profits once you have sent it to them. Scam brokers typically don't last long and show up recurrently in forum complaints, so an online search should reveal any major problems with a broker.
A more subtle problem is slow quotes, or your broker is trading against you. Day traders need a direct access broker, where the broker's software sends the trader's order directly to the appropriate exchange. In day trading, every split-second counts, so if you place an order, you want it to get to the exchange instantly. It's important to test your broker's software. A broker may offer great services, but if their software isn't good, it will be difficult to execute trades in a timely manner. Take a look at reddit, youtube and google to research everything you can about a broker before sending your money to them.
As a new trader, another hidden danger is yourself. When starting out, day trading will be stressful, possibly infuriating, and will tax your mind in ways you didn't think it could. The markets are an endless sea of possibility; you can buy and sell at any time, and no one cares whether you win or lose (except you). This sort of freedom is dangerous and unnerving for most people, which is why most people who try day trading lose money.
When you start out, you don't know how you will react under various stresses. Will you abandon your trading plan? Will you choose not to implement your risk management strategy? Will you overtrade, or become too afraid to trade? Will you blame the market, and not take personal responsibility? Are you even able to stay focused for a couple of hour stretch while you trade? Many people think they can remain focused, but constant distractions keep them from trading effectively. As much as possible, go through all the steps above to help minimize damage if you react negatively to the trading situation that may arise. Also, look critically at your personality.