Popular trading myths and scams to watch out for: (Series 8: Bee_A_Trader)
Welcome to the series 8 of the Bee_A_Trader, and this article will be a bit different than the last 7 series so far.
You can consider this as a continuation or a complimentary article of How to not get Rekt, which was my first article of the series.
> Disclaimer: I'm not a certified financial advisor, and even though I've been trading for quite a few years, I urge people reading this, and my other posts to #dyor (Do your own research) before taking any decisions! There is no guarantee whatsoever that you will become a profitable trader.
Of course I'm going to help you out if you have some queries/doubts, so feel free to let me know in the comments, or on Twitter :)
Disclaimer: Alright, this is some serious financial advice so read on. :P
Let's first start with a few common trading myths:
1) High leverage means high profits.
This is a myth. No owe will tell you that the risk is also increased manifold. Suppose Bitcoin is at $10,000 and you buy Bitcoin worth $10,000. Bitcoin drops to $8000, and you lose $2000 (notional loss unless you sell and exit).
At this point, you can choose to cut $2000 loss and simply exit.
Now consider you are playing on futures/margin on leverage.
You take a 20x long with full $10k capital, which means your net effective position is now worth $10,000 x 20 = 200,000
Now at this point, you may feel like, if Bitoin goes to $11000, you will have a net gain of $20,000 (that's what your most social media influencers tell you)
Now, have you, ever thought what if the price goes down by $500? In that case, you lose $500x20 = $10000 which effectively means, you get liquidated, or basically lose all!
So while high leverage may seem to be attractive at first, it is not so. (In my personal trades, I play on high leverage, sometimes I even take up to 20-25x leverage, but I never risk more than 2% of my net capital. This is something no one will tell you. But I'm sharing this with you all. Out of 10 trades, even if 3-4 of them do get liquidated, I get enough profits from the other trades to make up for the lost amounts. So if you see someone making HUGE gains on social media, just remember: Risk management is the most important to stay in this market. What if the trade goes wrong? You never know.) Risk only what you can afford to lose. Set a 1-2% risk per trade or even less in case you are a newbie. The more you risk, the more emotional you get, and your trades will get ruined; and of course, your chances of getting liquidated, or losing everything gets exponentially higher. For effective trading, I'd personally recommend you to start with the bare minimum, even $10-20 per trade, if your account is very small, is absolutely fine. Don't get brainwashed by the outside noise. Later on, once you are confident, you can increase your stake.
Here's a rough illustration for the same:
Check this link out for more detailed explanation: https://www.babypips.com/learn/forex/margin-vs-leverage
2) More indicators is better.
You may have seen a lot of people on social media posting charts which are filled with tins of indicators. (moving averages + RSI + MACD+ VWAP + Ichimoku cloud + supertrend + Adx, + (insert 10 more indicators here)).
Alright, more indicators will only add to your confusion. You will never be able to form a solid decision if you use thousands of indicators at once.
In my case, I personally like to keep things to a minimum.
I usually use Moving averages and Supertrend indicators to check the momentum, and then RSI, and then check candlestick charts. And that's pretty much it!
I try to keep my own trading style simple by not over-complicating things.
Not something like this:
For more confirmation, I sometimes use volume profile, and Ichimoku cloud (for trend following trades)
but it purely depends.
3) What goes down will eventually rise.
Now this is a big myth.
This may be true for Bitcoin,
This may be true for Gold/Silver or other hard assets,
This may be true for some Stocks,
But believe me, this thing is false for most of the assets.
Markets can stay irrational longer than you expect it to be, which will kill many other opportunities, which will make you impatient, which will, in turn drain you emotionally.
Let me pull up one of the latest examples:
Consider the below chart for $YFII.
Alright I had big short orders which didn't get filled (around 2800-3000). I was expecting a bearish retest to happen, to fill my shorts, and obviously it didn't happen on a larger timeframe,
This is a classic example of: "The Market Can Remain Irrational Longer Than You Can Remain Solvent"
It just dumped and dumped, but I did not chase the dump as it was risky, just like chasing pumps and then getting -90% down.
Alright, now go back in time and imagine those people who bought XRP at $3 in early 2018 after CNBC published a video on "How to buy XRP" Many of them are still in neck deep shit (unfortunately).
No one knows if it will rise or fall more. Yet, still now, a lot of people still keep on asking: "How much will XRP rise? Will it go to $10? Will it go to $589 and all stuff.
There's one more golden saying: Never follow the herd. The herd gets slaughtered like sheep. (Alright XRP Fanboi, if you are reading this, don't take this personally. It was just an example. There are thousands of other coins which I could have taken, but Xrp is much more popular, and comes under the top 5 cryptos)
Alright you want one more example? Go down the history of equity markets, and take the market crash during the 1929. DJIA took almost 22 years to revert to the pre-1929 crash levels, for example.
4) You will need a lot of money to trade.
There are many social media influencers who have made this space look ridiculous. This is not entirely true.
Go and google "Richard Dennis" and see his wikipedia profile.
Now I'm not saying everyone will become like that guy. It's after all how much efforts, and patience, and skills you have in the market.
(hint: That guy was a commodities trader and turned $400 into millions.)
But again, don't expect to turn $100 into millions by gambling with very high leverage. There are extremely high chances that you may get liquidated.
5) You need a fancy setup with minimum 4-5 screens to become a good trader.
They look cool, 4-5 screens, access to premium features by your broker, access to all premium charting tools, access to all paid APIs, and stuff. But is it really needed? 90% chance: If you are a good trader, you won't probably need it. Though some services do provide great insights about the markets, but it is really not something that is mandatory. They may complement your trading skills an decision making process, but it's not a necessity. Consider that as a luxury car. If you have the money, go for it! Otherwise, a cheap car will also serve the same purpose, right? Ultimately your main goal for buying a car should be about travelling.
image source: internet search
You probably don't need something like the above setup
6) Joining a Paid group will give me HUGE profits.
I have formed one assumption, which seems to be valid most of the time: "Most paid group leaders and admins make money by collecting fees, rather than by actual trading itself"
In the end, if a trader is really successful, why will they offer paid services?
Two cases: Either that trader is extremely greedy, or, the trader actually doesn't make money by trading.
Although some paid group services offer genuine services, and deliver genuine results by leveraging proper risk management, position sizing and Technical Analysis, most of the paid groups are basically useless.
-> A large number of them simply copy and paste from other channels/groups -> A large number of them run multiple groups and give both long and short calls, and somehow they trick you into believing that they are correct every time. -> Many of them even delete some of their calls, which, effectively defeats the purpose of a trade. -> Most of them are there, just to collect fees. In other words, it's a business to lure people, with their social media influencing skills, to make people to pay fees for something that's worthless (again I'm repeating, there are some exceptions.)
Here's a meme, from a scene in Bird Box. You are supposed to look out on your own, not rely fully on your favorite influencers and leaders. don't be blind in this market. :)
Now many of the paid group members even do not understand the fundamental basics.
I have seen that they take small positions, take some degen 100x longs with only $2-3 of their capital, show percentage gains, and even add up that gains (LOL)
-> In one instance, I have seen one channel posting gains of 100%, 200% and 130%. and later claim that they got a net 430% gain in one day. If you have a little bit of common sense, and if you understand elementary school level mathematics, you must understand that this is complete bullshit. And it is.
Alright, now let's say they have a capital of $1000, and they want to show people lot's of %age gains. Percentage gains attract a lot of people psychologically.
For example: That trader can isolate and keep a $10 margin and take a 100x leverage and show 200% returns on let's say some 2% move, and people think that they are great. (and you never know whether that trader has some other position running in loss)
Also there has been instances where most of the traders (AKA influencers) do not post their losing trades, or do not admit that they went wrong, or even if their stoploss hit.
(I adopted a fair approach in that, and updated where my stoplosses got hit in my tweets, and also I did keep the tradingview idea on my Sxp, where my stoploss got hit :), but again, not bragging about anything)
Itβs also useful to practice trading on your own, so you can learn from your mistakes and find what works best for you and your trading style. This is because there are tons of free trading tutorials on the internet, and the internet is the best place to learn.
Time for some scams
(No lol I'm not scamming)
6) Pump and dump channels, and joining insider info groups will give big money.
Alright, this is extremely obvious.
The odds of winning in a Pump and Dump operation, if you are a normal person following their call is less than 1%, unless you are using any custom bots.
I have an experience with a couple of groups where I was purely in luck to see that one big telegram group was pumping up some shitcoin I was holding for a long time, and I was purely in luck to sell that for a neat 88% profit in less than 3 seconds.
BUT...
That was my first and last time. I found the practice extremely unfair, especially with the fact that almost everyone who takes part in the system gets dumped on. Thousands of investors lost their money, many of them bought the peak of the pump and then got dumped on.
Now these pump and dump schemes are often orchestrated by private P&D groups that promise big returns in a short period of time, and very often most of the traders get burnt.
It is an illegal activity in traditional markets, and is a very unfair practice, which hinders growth of the entire crypto ecosystem.
My personal opinion: Avoid them like plague, and ask all noob people joining them, to avoid them.
Here are a few external links about how they operate:
https://cointelegraph.com/news/pump-and-dump-groups-become-widespread-as-market-remains-largely-unregulated https://www.investopedia.com/news/how-cryptocurrency-pumpanddump-scams-work/
A Typical P&D chart:
7) Crypto Airdrops:
Although it sounds cool, there are instances where thousands of people got free airdrop (which was worth $1400-2000) by using uniswap, and then there are some airdrops like Meme, where the airdropped value was more than $600k.
It is of course a good way to take part in Airdrops, but beware of scams.
As always:
NEVER SEND ANY MONEY TO ANY AIRDROP BOT OR CHANNEL OR GROUP. AND NEVER SHARE YOUR PRIVATE KEY ON ANY SITE
If some random airdrop asks you to send money, even if it's for fees, there's a 99.99% chance it is a scam.
Sometimes they even ask you for a lot of personally identifiable information, but give the details only if you verify that the airdrop is not a scam.
Sometimes they may even ask you to click some malicious links which they can send over via email, telegram, or by any other means. You click that, land into a phishing site, and BAM, you just got REKT.
There are many people who lost hundreds of thousands of dollars and bitcoins, because they clicked on scammy links which exposed vulnerabilities in the system, or injected virus/malware into their system, in order to hack into their account(s).
8) Online mining schemes and MLM schemes:
MLM (Multi level marketing) is very common in the space, and every year, hundreds of thousands of unsuspecting users lose a big part of their investments in MLM scams and rug pulls.
It is always better to avoid MLM schemes.
There are instances where they will offer fixed returns like:
"Deposit $500, get $600 back,
Deposit $1000, get $1200 back "
and stuff like this,
Or, even stuff like: "Deposit $1000, and earn 2% daily with our proprietary trading bot"
Chances are, if you get into these schemes, your money will be lost forever.
There are even scams which go on discord like:
These are fake exchanges, which look like legitimate exchange, and then they will ask you to deposit some funds to unlock the balance.
NEVER DO THAT!!!
Though these are not exhaustive lists, I'll always urge you to Do your own research about everything.
Knowing about markets and learning to survive in this market is a long process.
If you want to add on, please feel free to add more in the comments section :)
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