11 N00b Mistakes I Made with Crypto Trading Bots - A Tale of Lessons Learned (The Hard Way)by@aressanchez
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11 N00b Mistakes I Made with Crypto Trading Bots - A Tale of Lessons Learned (The Hard Way)

by Ares SanchezApril 18th, 2023
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Many inexperienced traders turn to automated trading bots thinking they can shortcut their way to financial freedom. It's easy to get caught up in the hype and think that cryptocurrencies will keep rising indefinitely. Equip your bot with proper risk management strategies to protect your investments from inevitable downturns.

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Ah, the rollercoaster world of cryptocurrencies! It's a thrilling, heart-pounding ride that can send you soaring to dizzying heights, only to plunge you into the depths of despair moments later. As a battle-hardened trader, I've had my fair share of ups and downs, and trust me, I've made enough mistakes to fill a blooper reel.

Too many inexperienced traders turn to automated trading bots thinking they can shortcut their way to financial freedom. They sign up for a bot platform, copy a bot by someone named "The Fed," and wait for it to start printing money. What could possibly go wrong?

Plenty, as it turns out. So, grab some popcorn and join me as I share my top beginner mistakes with crypto trading bots - and how you can learn these lessons without paying dearly, as I did. You're welcome.

Mistake #1. Believing that cryptocurrencies always “Number go up”

It's easy to get caught up in the hype and think that cryptocurrencies will keep rising indefinitely - after all, we are still early to the crypto world, and there is a massive potential upside. Right?

The now famous "Number go up" meme, or NGU, perfectly encapsulates this ideology.

Even though I have no crystal ball, I believe there is much-untapped potential. Nothing wrong with that; the problem is assuming that crypto will continue rising in a more-or-less straight line, with market downturns being nothing more than a temporary correction where you can buy crypto at a "discount."

Just like a smoker gazing at the stomach-turning pictures in a pack of cigarettes thinks he won't share the same fate, I too was oblivious that this Number go up belief was like a hideous cancer cell about to metastasize my bank account.

Everybody knows what goes up must come down, yet I somehow thought crypto was immune to the financial law of gravity. I didn't take the possibility of severe corrections seriously, and my trading bots were as unprepared as a sunbather in a hailstorm. Stop-loss? Nah, why take a loss when you can just wait it out (or better yet, buy the dip)?

While this is now obvious in hindsight, it's easy to overlook for newcomers, especially when they join in the middle of a bull run. And what's worse, this one belief will permeate all other decisions, leading to more costly mistakes, as we will see shortly.

Lesson: Equip your bot with proper risk management strategies to protect your investments from inevitable downturns.

Mistake #2. Believing that backtesting and paper trading are a waste of time

In case you are unfamiliar, backtesting is the process of applying your trading strategy to historical data, while paper trading uses real-time data with fake funds (aka, forward testing). You can regard these tools as a way to "dry run" your trading strategies without risking your hard-earned money.

Backtesting and paper trading are essential tools in a trader's toolbox, especially for beginners. However, not only I believed I had discovered a shortcut to financial success with trading bots, I thought I could shortcut the shortcut by skipping backtesting and paper trading altogether. Yes, I’m a genius.

In the early days, I treated backtesting and paper trading like that one weird cousin you avoid at family gatherings - I just didn't want to bother. After all, since crypto mostly goes up, time spent paper trading is time that I could have employed to get a real profit. Big mistake! These tools let you test your strategies in a simulated environment and can uncover potential pitfalls in your strategy well before they burn a hole in your bankroll.

Lesson: Take your time with the market; use backtesting and paper trading to fine-tune your approach before the real deal.

Mistake #3. Throwing all my eggs into one basket, and then accidentally dropping the basket

In my eagerness to hit the ground running, I invested way too much capital from the get-go. Following the reasoning from Mistake #1, if crypto mostly goes up, the best time to invest was yesterday, and the next best time is right now.

As a result, I had little wiggle room when the market turned sour, and my losses felt like accidentally stepping on a Lego brick - painful and completely avoidable.

Lesson: Start with less capital and gradually increase your investments as you gain experience and confidence.

Mistake #4. Expecting my trading bot to be a set-it-and-forget-it money-making machine

I used to think that a trading bot was like a golden goose that would lay a steady stream of profit eggs while I sipped piña coladas on the beach.

Unfortunately, that's not quite the case. While trading bots can streamline the trading process, you must monitor them and adjust when necessary.

Whether your trading bot ends up being a golden goose laying golden eggs or a scabies-riddled pigeon pooping all over the floor depends not only on their trading rules, but how well you monitor and adapt them to perform at their best.

Lesson: Market conditions can change as quickly as the weather in London, and your bot might need a helping hand to keep up.

Mistake #5. Diving into bot trading without mastering the art of technical analysis

Imagine trying to cook a gourmet meal without knowing the difference between a spatula and a whisk - that's pretty much what I did when I started bot trading without understanding technical analysis.

Since I believed the bot could do all the trading automatically, why bother learning the fundamentals myself? That is precious time that could be employed sipping piña coladas. However, this mistake made itself apparent quite quickly, as the cracks in my strategy began to reveal themselves as unwelcome losing trades (aka red bags) that desperately needed manual intervention.

Lesson: Make sure you have a solid grasp of technical analysis to avoid burning your investments like an overcooked soufflé.

Mistake #6. Turning a blind eye to macro signals

Once I became aware that bot trading without proper knowledge of technical indicators is like trying to build a rocket without knowing a thing about physics or engineering, I started focusing on the nitty-gritty of technical indicators. However, still holding firm on Mistake #1 (crypto mostly goes up), I completely ignored the macro signals hinting at market direction shifts. I was like an ostrich with its head in the sand, oblivious to the impending danger.

Those of us who have been around through the end of 2021 and the horrifying 2022 look back at the 80-90% plunge of most crypto assets as a cautionary tale. The market doesn't care if I think there is "much-untapped potential." The market does what it does by riding on the collective psychology of millions of traders, which, in case you didn't notice, can change around as quickly as a squirrel on a sugar rush. And when the macro change happens, you can bet your indicator over-optimization will get crushed like a soda can at a sumo wrestler's sitting practice.

Lesson: Keep an eye on the broader market trends, regulatory changes, global economic events, and major crypto news to avoid being caught off-guard when the market changes course.

Mistake #7. The more, the merrier - or so I thought

I once believed that the more indicators I crammed into my trading strategy, the more successful I would be. I spent hours configuring my bot with elaborate algorithms and a smorgasbord of technical indicators. The result? A confused bot that performed about as well as a cat trying to catch a laser pointer.

Piling on indicators like an all-you-can-eat buffet is likely to end up in indigestion. A well-chosen, simplified strategy can be far more effective than an overly complicated one. It's like finding the perfect recipe - sometimes, you only need a few key ingredients to create a culinary masterpiece, rather than trying to mix every flavor under the sun.

Lesson: Simplify your approach and focus on a few key indicators to see consistent success.

Mistake #8: The constant search for the "One Indicator to Rule Them All"

In the early days, I was convinced that there must be a single, all-powerful indicator out there, a magical talisman that would unlock the secrets of the market and lead me to untold riches. I spent countless hours hunting for this mythical beast, like a crypto-obsessed Indiana Jones on a quest for the Holy Grail of trading.

This quest was perhaps fueled by the never-ending supply of Youtube "influencers" claiming to have found the "treasure." These clickbaity videos featuring some eye-popping ROI %, lots of dollar signs, and the YouTubers' facial expressions as if they had just caught you doing some indecent act can easily fool novice traders into thinking they have the one indicator to rule them all.

However, the harsh truth is that no single indicator can predict the market's every move. It's like trying to understand a Shakespearean play by only reading one line - you'll miss the bigger picture.

Lesson: Instead of wasting time searching for a non-existent, all-encompassing indicator, focus on combining a few key indicators that complement each other and provide a well-rounded view of the market.

Mistake #9. Trusting Twitter calls and YouTube shills like they're fortune-tellers

It's tempting to follow the advice of so-called "crypto gurus" on social media but remember, they're not psychic! In fact, you should routinely question their intent when promoting the next hot coin pick or expensive ape NFT. Were they paid to promote them? Are they early investors in the projects? Do they have a financial relationship with these projects?

If you take Twitter calls and YouTube shills at face value, you will, perhaps unsurprisingly, realize that their crystal balls are, at best, about as accurate as a blindfolded darts player. Or worse, directly against your interest.

Lesson: Do your own research and make informed decisions based on your analysis instead of relying on the whims of internet strangers.

Mistake #10. Choosing coins to bot-trade based on volatility, ignoring fundamental analysis

A few months ago, a female friend asked me for help to buy a digital camera. As we walked through the store, about 20 minutes into my masterclass explaining the difference between DSL and mirrorless, megapixels, image stabilization, and other technical factors, she abruptly interrupted me, pointing over my shoulder and exclaiming, "That one!". I couldn't help but roll my eyes when I saw what she was pointing at, a glittery pink camera from a never-heard-before brand. All my subsequent efforts trying to make her see the technical superiority of other choices were in vain because, well, megapixels can't compete with pink and glittery.

Little did I know I would make the same mistake, albeit in a different domain, when choosing coins solely on volatility and ignoring all fundamental factors. That volatility can provide some mouth-watering returns, but what happens when it becomes evident that the technology wasn't sound, the team just wanted to get your money, or there was no actual use case at all?

If you thought that trading Useless Ethereum Token (I kid you not, that's the actual name) was a good idea, then the joke is on you since they openly state they have no use case at all. However, most other sh$tcoins aren't so open about their un-usefulness, so you must research to avoid being caught up in a bad trade.

Lesson: Consider factors such as the project's team, technology, and real-world use cases to make more informed trading decisions.

Mistake #11. Falling in love with your red bags

As an inexperienced trader, I grew emotionally attached to my investments, even when they dragged me down like an anchor in a stormy sea. Instead of cutting my losses and moving on, I clung to these red bags as if they were long-lost loves, convinced that they would eventually return to me and make everything right again.

I took the term "Diamond hands" to a new level when I successfully rode the now-biblical 99% drop of LUNA collapse without hitting the panic sell button. Though sometimes weathering the storm can end up in your favor, there has to be a point where the hope of recovery can be officially classified as delusional. For LUNA, that point might have been when crashing past the $40, $30, or $20 level. By the time I recognized there was no coming back, it was too late.

In crypto trading, keeping your emotions in check and making rational decisions based on cold, hard data is essential. That way, you can avoid the heartache of watching your once-promising investments fade away like a dying flame.

Lesson: Learn to recognize when to let go and move on to more promising investments.


So there you have it, folks - my top beginner mistakes when using crypto trading bots, served with a side of humor and a healthy dollop of humility. Though I can laugh about them now, it wasn't so funny then.

By learning from my mistakes, I hope you'll be well on your way to navigating the wild and wonderful world of automated cryptocurrency trading. Good luck, and may your trades be ever in your favor!

Disclaimer*: Trading cryptocurrencies involves risk. This article is not financial advice. I am not a financial advisor. I am just a member of the cryptocurrency community sharing my experience. Never invest anything you are not prepared to lose.*