Crypto signals: how to use. Why 90% of beginners lose money
By Yuriy Bishko Updated November 11, 2022
Every trader who is just at the beginning of their way in trading, immediately turns his attention to different trading channels or platforms with signals. In anticipation of immediately starting to earn 100% to your trading account.
- what are crypto trading signals?
- does crypto signal work?
- how to get crypto trading signals?
- where to get bitcoin and altcoins signals?
- best paid crypto signals, crypto signals binance futures, etc.
But of course, most are looking for: crypto signals telegram channels, crypto signals group, crypto signals discord.
In this article, we will answer all these questions and explain why 90% of beginners lose their money trading on signals and what you need to do to be the 10% who earn.
What are crypto trading signals?
Trading signals is a service that allows signal subscribers to receive recommendations on opening trading agreements in cryptocurrency and other markets from traders with extensive trading experience. Unlike analytical reviews and trading ideas, a signal is an accurate recommendation to open and close a sell or buy trade that needs to be executed within a precise period of time at a recommended price.
Watch the video - How to Make Money on Crypto Signals - Avoiding TOP 5 mistakes of Beginners
In general, we can say that signals are a good opportunity for novice traders to start earning without much experience in trading. The screenshots below are examples of trades from our community group.
Yuriy, the main trader, sent a signal to open a short position.
Preconditions have been identified.
- Risk to profit 1:2.
- Entrance - $41,475
- Stop loss - $42,771
- Take profit - $39,694
From the beginning to the end of the trade, traders monitored and reported on the situation in the chat. They talked about how and when to record profits in order to make the biggest profit. As a result, the deal reached a take profit point.
When subscribing to signals, novice traders expect to simply open trades and make money every time, but unfortunately, it is not that simple and without prior preparation and following clear rules, your trading will have negative results. That's why we've highlighted the main reasons for losses.
Top 5 reasons why beginners lose money trading on signals.
Absence of training
One of the main mistakes beginners make is that they start using signals without enough experience. In order to copy trades, it is advisable to understand the rules and principles of the trading strategy that the trader uses.
In order to work properly with the recommendations you absolutely need to know:
- how to control risks
- how to work with platforms
- where and when to place SL
- when and how to enter and exit trades
Without this knowledge, you should not blindly trade on crypto signals.
Signals are not the holy grail!
When you start receiving signals, beginners expect that 100% of trades will bring them profit, but this is not possible. You need to understand basic concepts such as win rate, risk per trade, risk per day, go for the same prices and understand the strategy used by traders. All these concepts are disclosed in more detail in other paragraphs.
The main task of the trader is not to guess 100% of the direction of movement, but to earn more than lose. For example, the screenshot below shows statistics showing that the percentage of profitable trades is only 46%. At the same time, the profit of our balance is about 300%, and the profit/loss ratio is 4.3.
What do these statistics mean?
Win rate means that only 45 deals out of 100 are profitable. Profit Loss ratio means that for every dollar lost we earn $4.3. Thus, our profit is about 300%. Now you understand that your percentage of profitable transactions can be as high as 10-20%, and you will be a profitable trader.
Win rate and risk/reward ratio.
Win rate is one of the main concepts. You will be surprised, but you can be profitable even if you have 8 out of 10 unprofitable deals and only two profitable ones. It all depends on your win rate and risk reward ratio.
The table below shows the different risk-profit ratios and win rate trades. For example, if your win rate is 20%, then your strategy should put you at risk of a profit of at least 5:1. This means that you can have 3 out of 5 unprofitable trades and you will be a profitable trader. If your risk to profit is 1:1, it means that more than 50% of trades should be profitable and so on. We talked in more detail about the risk/reward ratio in this article.
Risk per trade
Many traders violate the rules of risk, and as a result they are punished by losing a significant portion of or all of their capital. One of the main rules of trading is to lose and risk as little capital as possible.
Some beginners not understanding this often open deals with the risk of 20% or more. As a result they lose their capital within several trades.
The pictures below show the risk scale and the % you need to earn in order to recover your capital. For example, if you lose 10% of your capital, you need to earn only 11% to restore your balance. But if you lose 90%, you already need to earn 900% to return your balance to its original values. You have to understand that in order to earn 900% and recover 90% of the lost capital, you need to spend several years of your life. Risk per trade, one of the most important points in trading, the best solution is to have a fixed risk of 2-1% or less.
When we open a trade, we don't know if it will be profitable or negative. Therefore, we use the same risk, rely on our trading strategy and mathematical expectations. You have to understand that there can be 7 unprofitable trades and then the same 7 profitable ones. But based on mathematical expectations, we know that as a result we will have more profit than loss. We have explained in more detail about the risk per trade in this article.
Skip trades and do not follow the entry rules
Quite often beginners make the same mistake. Begin to enter the trades. Get 2-3 times the loss, then believe that the signals do not work, or just miss the trade, which brings profit and covers past losses. It is very important to follow all the signals. Another common mistake is incorrectly opened trades. For example: we open shorts (false breakout of the trend line), risk profit 1 to 5.2, stop loss 2,2%.
The novice trader saw the signal half an hour after the publication and entered into a deal. At the same time, the price has already moved away from the entry point and the risk to profit indicators have changed significantly.
Yes, he made a profit, but much less. Let's compare the real amount. Risk $100. In case of a take, we will receive $520. In case of a stop loss, we will lose $100. But if you open a trade on the example of a novice trader. In case of a take, your profit would be $216. In case of a stop, your loss would be $100. You didn't make $300. By opening 2-3 such trades, your statistics may already be negative.
Now you understand that signals are not just about opening and closing a position. In order to follow the signals you need: to understand the basics of trading strategy and technical analysis, to be able to calculate the risks and clearly follow the rules of risk management.