In the world of cryptocurrency, there are a number of mistakes that traders make. These crypto trading mistakes can often lead to losses and prove detrimental to an investor’s portfolio. Cryptocurrency assets have a reputation for being volatile and susceptible to market forces, so it is important that investors understand what they’re getting into before investing in these assets. Here are some tips.
1. Not doing enough research
Probably the most common mistake that people make when they’re trading cryptocurrencies is not putting enough time and effort into research. When buying and selling bitcoin, for example, the market forces such as supply and demand will determine its price. Being able to tell where a trend is going to happen should be the first step to trading success. For example: if you wanted to know whether it was worth investing in Bitcoin (BTC), first you would have to research the history of Bitcoin prices from past dates, then use that information to predict future trends. It’s also essential not just to look at how much a cryptocurrency has grown recently but by how much it has grown compared to its past growth.
2. Not having a well-defined strategy
When it comes to trading, there are many strategies you can use. These strategies are often very different from one another. For example, you might decide that it is best to buy 5 or 10 cryptocurrencies and then wait for them all to grow before selling them off. Another strategy could involve buying currencies in certain ranges of prices and then trying to sell them when they’re at a higher price range. The most important thing with any strategy is that you have already decided what your aims are so that you can measure if your strategies are successful or not. Having a good plan means having clear goals—this will help keep the trajectory towards your targets on track. A strategy will also help you decide when it is best to buy, sell and hold your cryptocurrency.
3. Not being aware of fees
One of the less-discussed aspects of trading cryptocurrencies is the fees that you pay. Fees are charges applied by exchanges for converting your fiat currency into cryptocurrency and vice versa. These charges can vary from one exchange to another, which is something that many people fail to take into consideration when they’re trading. Trading without taking these fees into account will result in a loss each time your assets change hands—this means that your profits become losses at some point. Fees are something that are usually fixed, so the best thing to do is not try to avoid them but rather focus on keeping costs down.
4. Not having a proper back-up plan
Another common mistake that some cryptocurrency traders make is not having a proper back-up strategy. When it comes to trading, there are no guarantees of success, and you can never tell what the future holds for your assets. A small event such as some bad news about a certain cryptocurrency can result in big losses for investors if they aren’t prepared. Having a back-up plan means knowing how you will respond to various scenarios. Some examples of these strategies might be keeping an emergency fund so that you can maintain your standards of living when the market takes a downturn or buying cryptocurrencies from different markets so that you can take advantage of opportunities when one coin dips in price.
5. Making decisions based on emotions rather than logic
It’s easy to get swept up by the hype surrounding cryptocurrencies. If bitcoin is doing well, it can be hard not to jump on the bandwagon and buy more of it. However, this isn’t necessarily a good idea—especially if you don’t have any previous experience with trading. Even though everyone else seems to be making money hand-over-fist, that doesn’t guarantee that your investments will grow too. Taking decisions based on emotions means basing them on feelings rather than facts. This won’t make your wallet any fatter—in fact, it could cause you financial difficulties should an unexpected event occur. If your emotions are telling you to buy even though the price of a certain cryptocurrency is too high, you won’t have the necessary logic to help nudge you in the other direction.
6. Using large amounts of cash
One strategy that many traders choose is using their entire salary for investing in cryptocurrencies. This is actually a terrible idea because doing so means taking unnecessary risks. You don’t want to shell out everything you’ve earned on what you hope could be an amazing investment opportunity. It’s better to start small and only invest the money that you can afford to lose, keeping some cash aside in case your investments don’t go as planned. Having a large amount of finances at risk increases the chances of disaster should something happen with your assets that aren’t backed up by anything else. It’s better to take it slow, build your portfolio over time and invest only what you can afford to lose.
So, these were some main mistakes people make when trading. It is possible to avoid these things by checking information before investing, using only small amounts of cash, and having a backup strategy that you can use if something goes wrong with your initial investments. Good luck with your investments!