Home » Trading » Crypto Trading Guide: 4 Common Pitfalls Every Crypto Trader Will Experience

The purpose of this crypto trading guide is to highlight 4 common pitfalls every crypto trader will experience, with the hopes of putting some of your fears to rest and let you know:

“No, you’re not the only one.”

Perhaps you’ve been attracted to crypto because you’ve seen the massive gains that individuals have made in the sphere and you figured, ‘Well, it can’t be that hard can it?

This is both right and wrong. The good news is that your original presumption is correct – there is definitely a lot of money to be gained in cryptocurrency. Here’s a snapshot of the mind-boggling returns that you’d make by investing in Bitcoin and altcoins in 2017.

However, the negative is that you’re going to need to go through the growing pains of being a trader first before making the gains. So, without further adieu, I present to you an article dedicated to outlining the pitfalls every crypto trader will face eventually.

1) “I’m Smarter Than Most People – I Won’t Make the Same Mistakes”

Even as I write this, I’m sure that there is a percentage of individuals that will still assume that they are an outlier to this pitfall anyway.

This pitfall is something that doesn’t catch everyone, but it absolutely murders those that are smart. Yes, I’m aware that you majored in Finance at an Ivy League University, you were the smartest in all of your classes, and you almost got a perfect score on the SAT. You’re a well-read individual and you pick up on things fast. In fact, you’re so smart that when you come across new games/challenges, it takes you almost no time at all to become an expert!

Trading isn’t like that and none of those things qualities that I listed above, matter

Trading is a psychological game. A high schooler can learn how to chart, read indicators and gauge market cycles – it’s not rocket science. It’s about whether one is willing to put in the time and dedication to learning those concepts and trying them out.

The difficulty with accepting most market strategies is that many of them are counter-intuitive to how we’re wired as human beings. Most people scream “buy the dip!”, but you see few traders actually employ that strategy because, as humans, we’re wired to avoid a stock/cryptocurrency that’s been in the negative a lot recently. Red=bad. Negative returns=bad. (See also: Crypto ICO vs. Stock IPO: What’s the Difference?)

This is just one of the many ways that smart people beat themselves on the market. Smart folk also tend to be more resistant toward adopting tried and true market strategies. Usually, smart individuals have thrived throughout their life by abandoning the beaten path and figuring out something of their own that works. And for the most part, this has worked. However, it won’t in trading. (Read also: Cryptocurrency Trading: Understanding Cryptocurrency Trading Pairs & How it Works)

Unfortunately, trading isn’t something that you’re going to be able to “force” in your favor the way that you’ve probably done with a lot of other things in your life. You’re going to have to sit down and study market theory, charts, and indicators just like everyone else. If not, you’ll continue to pay the price and trust me when I say that the market isn’t merciless. Understanding crypto market fundamentals is a key foundation in the crypto world.

2) Joining a Pump & Dump Group

No one likes to admit this, but chances are that 95%+ of cryptocurrency traders have joined a PnD group at some point in time, either wittingly or unwittingly.

Perhaps it was the allure of the potential gains that you could make. You rationalized it in your head – and from an objective perspective, it makes sense. The coins that they target are relatively low market cap, so it’s definitely more than possible for them to bump the price up several percentage points. So, you figure if you just join one of these groups, you can follow the “calls” and get easy money from them. Simple, right?

Unfortunately, this is often never the case. Here’s how PnD groups typically work:

  • They’re composed of a bunch of “whales” (stakeholders with a LOT of free capital – $1 million or more typically).
  • These whales decide which coin that they’d like to “pump” – (Dogecoin used to is a favourite of theirs).
  • All of the whales get their positions in the cryptocurrency before they eventually pump the coin. Sometimes they take weeks doing so.
    1. The most common technique that they employ is the use of multiple buy/sell walls in order to force individuals to sell into their orders or buy the sell orders that they have up in order to keep the price stable as they accumulate more coins for the ‘pump’.
  • Once they’ve accumulated enough coins to be satisfied, they slowly move the price upward and then squeeze out ‘weak hands’ (people who are finicky when it comes to “hodling” cryptocurrency who sell at the slightest chance of profit loss), and continue to gradually increase the price.
  • Usually, by the time they’re announcing the pump to the general public (the Telegram/Discord/Slack group that you more than likely joined), they’ve already gained 100%+, if not more than that.
  • Whales are smart, so they figured out that it would be a dumb strategy if they simply dumped all of their coins at once because they would destroy the price of small market cap coins and end up with worthless bags of the coin they were trying to pump, which would undermine the entire purpose of the pump itself.
  • Therefore, they created the pump groups in order to generate ‘buyers’. As individuals eagerly purchase the cryptocurrency thinking that they’re on the ‘inside’ of a real pump, the only thing that they’re doing is just buying up the sell orders of the whales that have already made their money.
  • Once the whales have successfully sold you all of their bags, they exit the market and continue about their day. Meanwhile, you’re stuck waiting and hoping that the ‘pump’ will eventually happen and it never comes. In fact, more than likely you’re going to be ‘dumped’ on as the others that bought the cryptocurrency realize that they’ve been suckered and start to sell everything they have. (Read more: Paying for Crypto Tips? Here are 3 Reasons Not to!)

There are other ways that you’ll get screwed in a P&D group, but if you’re smart, then you’ll realize that these groups will never truly help you in the long-run. Additionally, it would be a good skill to know how to identify scam coins and projects.

3) Losing Money; Lots Of It

Everyone loses money trading, that’s just a part of the game. Even the experts lose money. If they claim that they don’t, then they’re simply lying to you. It’s hard if not downright impossible to get every call right. There’s just some shit that’s not going to go your way and there’s nothing you’ll really be able to do about it. In those cases, you have to be able to accept your losses and move on. (Read more: Crypto Beginners Guide: 5 Things Crypto Newbies Should Know)

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There are plenty of stories about legendary traders that had great success on the markets at one point in time, only to lose it all later. Hopefully, you don’t become one of those guys that “lose it all” because you’ll be practising good investment techniques. However, it’s always a possibility if you don’t remain disciplined in this highly volatile and risky world.

When you do lose money (and it could be a hefty sum), you just have to remember to keep your wits about you and remind yourself that it happens to everyone. It doesn’t make you an idiot, you don’t need to sell your house now (hopefully), and it doesn’t mean that you have to quit trading or that you’re a horrible trader. It happens to the best of us, trust me. There are well-respected traders out there that have made tens of millions on the market that get killed at times. It’s all a part of the game. (See also: Dangers in Cryptocurrency Investing)

Michael Jordan never won every game that he ever played. In fact, he’s lost hundreds if we’re counting the regular season. He’s lost playoff games and championship ones too. Going undefeated isn’t what makes you great, it’s being a consistent winner overall. It’s okay to take a loss as long as you’re in net profit. That’s the mark that you should aim to hit as a trader. And remember, always pay your taxes. Here’s a crypto tax guide if you’re a U.S. citizen.

4) Making Emotional Trades

Following up on the previous section, this needed to be stated. There will more than likely be a time in your trading career that you make a really great trade or a really terrible one. In either case, you’ll be at your most vulnerable.


Because your emotions will be at a peak. When you make a really great trade, you feel like a genius. The euphoric feeling of making a shitload of money out of the blue coupled with the fact that it manifested from your own strategy breeds a dangerous level of confidence and exuberance that will have you making some really stupid choices if left unchecked. If you’re wondering how so many great traders have gotten killed on the markets before, then this may be the number one reason. (See more: Evolution of Cryptocurrency: What is Cryptocurrency?)

The hubris that usually accompanies successful trades is what leads many traders to make riskier investments than they otherwise would have under the pretence that they hold a superior knowledge to all others in the marketplace. Keep in mind that this will almost always lead to your downfall at some point. (Read also: Is it Too Late to Buy Bitcoin and Is It too Late to Invest in Cryptocurrency?)

The markets will humble you if you don’t respect them

Of course, there’s the other side of the coin too. You just made a terrible trade and you’re down 25% or more on your portfolio. You watched with horror as you tabulated your final portfolio value and see a loss of several thousand dollars. The shame and anger begin to set in. How could this happen to you?

As humans, we hate these emotions and when we feel them, our first instinct is to stop feeling them, to put it crudely. So, what do traders usually do? Make another trade. This psychological tendency is no different than a gambler at Vegas that just got murdered at the blackjack table. Instead of walking away with a loss, his/her psychology tells them that they should play another hand and double up their bets in order to cover the losses. The mentality of, “I’m just one trade away from erasing that horrible decision that I made in the past” begins to take over, which is quickly followed by desperation. (Read also: Understanding Cryptocurrencies: Game of Thrones Edition)

I’ve witnessed that more often than not, this is the most frequent way that traders lose money.

My Advice

Take the loss and walk away. Remember that everyone loses and sometimes you’re going to lose in situations where it seems like everyone else exited a winner. It doesn’t mean you’re any worse/dumber than anyone else that’s trading, you just got caught up. It happens to everyone. Don’t beat yourself up about it, and definitely don’t make an emotional trade soon after to try to cover your losses. It will only result in more chaos. If you’re lucky, you may grab a trade that does indeed accomplish this objective, but this emotional level of trading will more than likely screw you sooner or later.

With that being said, it’s also more than likely that you’ll fall prey to the above circumstances at least once in your trading career.

Beneficial Resources To Get You Started

If you’re starting your journey into the complex world of cryptocurrencies, here’s a list of useful resources and guides that will get you on your way:

Crypto Beginners Guide, 5 Things Crypto Newbies Should Know, should know, crypto, guide

Trading & Exchange


Read also: Cryptocurrency Accounting Guide: How Do I Calculate My Crypto Gains? and Guide To Cryptocurrency Trading Basics: Introduction to Crypto Technical Analysis

This series of articles are contributed by CryptoMedication

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