The Biggest Trading Mistakes: Why You Are the Greatest Danger to Yourself
We must be very careful when executing our trades or investments. There are a million things that can go wrong, and mistakes can be expensive. Here are the most popular trading execution mistakes.
Welcome back, fellow trader, welcome back to a series of articles where I badger you with all the ways you can get f**** (hurt) in the markets. Today I’ll be talking about how you can manage that task all by yourself, without any external help, if you’re not careful. To some of you these incidents might seem funny or even impossible, but I assure you, they’re not.
I’ve been there and done that plenty of times myself. Oh, the scars I bear and hide underneath the happy facade. Let us first give a minute of silence for all our “fat finger” fallen comrades. Your sacrifice will not be forgotten.
Fat finger.
Wait, what the hell is a “fat finger,” and what’s that got to do with trading?
I’m glad you asked. We talk about a fat finger incident, when someone, usually a larger trader, suddenly sells (or buys) an inappropriately large position and causes the market to move significantly in price. This results in a large but short-lived spike in price. Again, this is more of a big player in an illiquid market type of problem, but since crypto is full of those ecosystems, we really should talk about them. You can find these unfortunate souls in the charts by spotting an unusually large short time frame candle (from a few seconds up to an hour candle) that really sticks out, accompanied by exceedingly heavy volume.
Those two data points, a very big short-time candle and a spike in volume, indicate that someone has sold or bought a large quantity of whatever the chart contains in a very short time. So either a market sell order or a mistyped (fat finger) limit order that just ate up all the orders on the way down (or up).
It usually only happens on one exchange, not all at once. That’s a definite hint that you’re dealing with an anomaly. If such massive buying or selling persists, then this could be a buyer or seller that is trying to move large quantities in a small market on purpose. Indicating a completely different situation.
Fun fact, did you know that on some exchanges, when you place a limit order far below the current price, you still execute that order, but it now acts like a market order until filled to completion? Fun, no? To avoid this, always make sure you have checked the “post only” option before posting an order.
How to profit from fat finger incidents?
Back in my altcoin trading days, I loved these fat finger incidents as I always had multiple buy orders way below the current price, ready to take whatever a clumsy unfortunate bastard would give me. And I got a lot of stupidly easy trades this way.
Imagine that some altcoin, let's say “Banana Ninjacoin” (nothing surprises you people anymore, does it), is trading at 10 USD per coin. I would set up buy orders at 2, 1, 0.5 USD, or even lower. So if I got that order filled, I could then just sell at a current price and take the free money from the market.
I hear that’s how bots do their business in de-fi exchanges.
They get the first dibs on any price lower than displayed in the books and instantly sell upon closure for profit. This truly is a world of the geeks now. They get the best of everything.
Fat fingers from other people, then, can be a good buying or selling opportunity for anyone ready for such an incident. But there is also a dark side to these occurrences.
The dark side of fat finger incidents.
For one, these will wreak havoc upon all the stop orders, force selling thousands of open positions, and then rebound back immediately, leaving traders angry and confused. You might find yourself among these at one point or another.
And let's not forget the biggest loser of this play, the one doing the “fingering.”
I will wash my keyboard afterward, I promise. This poor soul, at best, achieved a much lower average price for his mistake, think-slippage, and at worst, just exited all of his position unwillingly somehow and is now forced to buy back much higher.
Sometimes these fat finger gunslingers are confused bots that can’t manage unexpected market conditions for one reason or another. But f*** the robots, am I right?
Protection from fat fingers when executing your trades.
So how to make sure that you’re not the fool that causes these red or green short-time dildoes in the market?
By doing your due diligence before posting orders.
Take your time, be mindful when placing orders, and don’t do things in a rush.
Don’t drink (or do drugs) and trade… I shouldn’t have to say it, but I do (you know who you are).
Check the liquidity and volume in the market before opening any bigger trade. Make sure the market can take whatever you’re giving it (oh, the potty mouth on this one).
Make sure your orders are set up properly. If you want to open a “limit” order, make sure you’re not opening a “market” order. The same goes for stop orders and so on.
Read carefully the numbers that you're typing into the orders. You’d be surprised how easy it is to mistype things and cause a 10 times bigger position to be opened than intended.
Always use the “post only” option!
A good way to protect yourself from any mistakes of this sort is to enable the aforementioned “post only” option in your trading platform. That will prevent you from entering market orders and limit you to being able to only open orders that give you the taker fee, therefore limit orders.
That one has saved my behind more times than I would like to admit! To have the exchange automated alert system giving me a warning when I was trying to open some oversized position or had false parameters lined up (wrong price, stop, etc.). This still happens almost on a weekly basis.
Miscalculating or mistyping order values.
I know this sounds silly, but in practice, especially if you’re hurrying things for whatever reason, it’s a lot easier than you think. Especially when trading in Crypto with all the different denominations, base currencies, and differences in pricing, from 0.0000001 USD to 70,000.00 USD per one Magic Internet Coin of your choosing.
For instance, when you trade with Bitcoin, things can get really tricky, really fast, especially if you trade small sizes.
The difference between opening a 0.01 BTC or 0.1 BTC order is 10x! Same for one order of things higher, clicking to buy 9 BTC vs. 0.9 BTC could get you into trouble really fast. Just stop for a second and calculate what that means, please.
You were intending to buy 0.9 BTC, for instance, and at the price of this writing, that is about 27,000.00 USD. But your clumsy fingers made you open a 270,000.00 USD position! That’s no small difference, don’t you think?
You have to be especially careful when trading with leverage and having the open option of getting in way over your head!
And it’s only one missed decimal away. I’ve made this mistake on quite a few occasions but luckily noticed it fairly quickly, sometimes resulting in a nice quick unexpected profit and sometimes in much, much less desirable consequences, like being forced to take a 10x larger loss than planned.
Using different pairs and denominating your account in a foreign currency can be tricky.
Be especially careful when you trade in altcoins, and your denominator (your base currency) is Bitcoin.
When you have to type in 0.000004 or something similar, a zero or two can get lost in there very quickly, and you can end up a not-so-happy bag holder if you know what I mean.
When you’re using a base currency that is not your native currency, such as trading out of USD, and you’re used to using YEN in your daily life, for example, things get confusing rather quickly.
It’s even worse if you trade from a BTC or ETH-denominated trading account (or just trade the pair). It’s easy to play with much bigger USD values when you’re trading out of BTC because it’s very deceiving. It’s only 5 BTC. Who cares, right? I care, and chances are, you do too! Meh, I won 2 BTC, lost 3 BTC, no biggie. These days - biggie!
Also, keep in mind that when you trade in some other currency than USD or USDT, for that matter, charts and patterns can be somewhat irrelevant.
You want to be looking at the chart that most traders (or people in general) are looking at and base your trading decision on that data.
So when I was trading in BTC/EUR pair, for instance, I always had a BTC/USD chart open as well. You’d be surprised at the discrepancies between them. The USD chart was the one that mattered, but funny enough, because of less liquidity and, therefore, more random volatility, the EUR chart often offered better opportunities for trading.
Having a few charts open of the same pair on multiple exchanges might be good practice for any trader in general. It’s free and easy - click.
Sometimes, one particular chart on an exchange can indicate much more volatility and bigger moves than the other charts are showing, thereby deceiving your perception of the market and causing you to make wrong assumptions. Most of the time, that’s just an anomaly, but sometimes it can also indicate a problem or a change brewing below the surface.
I remember how lucky I felt one day when I was able to buy 11,000 USD Bitcoin on a small, now deceased exchange called Liquie, sometime in the winter of 2018 or thereabout, only to find out that by the time I had managed to move my Bitcoin with the intention to sell for the current price of 16,000 USD, the price had already begun to drop significantly on other exchanges as well. This was an early indication of things to come.
Give me leverage, baby!
If you’ve decided to play in the magical land of 100x leverage, you need to be even more careful. Calculating risk per trade and knowing just what kind of positions you should open is a bit more complicated when dealing with leverage. For now, let’s just say that what kind of leverage you click in the order box doesn’t matter one bit. I need to say this again - the amount of leverage doesn’t matter!
What matters is how much money you are going to lose if you're wrong on this trade.
You really need to come to terms with this mentality. Engrave it in your mind. Let it be your starting point. And never, I repeat, never put on naked trades with leverage!
Naked = without protection, without a stop! Don’t worry. You can be as naked as you want when you trade or in underpants, like most of us retail traders. Efficient cooling is important.
When using leverage, things can go wrong in an instant and very wrong indeed. Account liquidation wrong! We’ve all been there. It’s highly likely you will be as well. So let us remember the number one commandment for trading:
“Risk only what you are willing to lose completely!”
How much am I willing to lose if I am wrong?
Where am I wrong, and where am I getting out?
What size position can I then open?
If you cannot or will not make this your base for decision-making, do yourself a favor and stay the hell away from leverage. Or buy someone you love something nice, instead of giving your money to the market! You might even want to buy me some coffee at the bottom of this page to save you some money.
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