It can be very exciting when you first start trading in Cryptocurrency – but with great power comes great responsibility…
Beginners Crypto Guide have listed 7 of the most common mistakes trading cryptocurrency can entail, plus some top tips to help you along the way!
In this post we’ll take a look at some of the most frequent oversights and misapprehensions experienced by beginners in crypto trading.
#1 Risky Trading
When it comes to trading, whether it be gold, stocks or cryptocurrency, the advice is very similar across the board. Some general rules of thumb should be applied by beginners when trading cryptocurrency:
Do not use leverage unless you know what you are doing!
The appeal of making 5x, 10x or 100x returns is obvious, but unless this this sort of trade is based on an informed decision and strong fundamentals, it is essentially just gambling. Although you could make an insane return on your investment, you’re more likely to loose an insane amount very quickly if you don’t know what you’re doing.
Calculating and managing risk is critical for preserving wealth and ensuring you do not go straight to Rekt City.
#2 Not Thinking Long-Term
Investing for the long-term is the strategy adopted by most successful investors. After carrying out extensive research and investing in strong assets, many people like to sit and wait.
If the project behind the asset is successful then it will likely take time for this to become apparent, but the returns could be greater than you initially thought.
Amazon was once just a guy selling books online from his garage, and now they practically rule world. If you are looking for a small chance to make a quick buck, however, then Vegas is probably just as good an option for you.
When investing for the long term, you are committing to seeing a company or a project throughout its’ developmental years with the belief that the idea will become successful and develop into something great.
Companies such as Tesla, Microsoft, Facebook and Amazon have continually adapted to the next level of technology and culture and this is a key part of their success.
If you invested $100 in Bitcoin in October 2010, that same amount would be worth over $9 million today. Blockchain technology and cryptocurrency are relatively new and many are yet to realise their full potential.
Despite seeing incredible returns over the last 10 years, this is only the beginning. For many, the prospect of making a quick buck here and there with crypto is quite appealing, but failing to see the long term potential is one of the most common mistakes trading cryptocurrency.
However, for those with the patience to sit tight and Hodl, the rewards could be astronomical.
#3 Investing Too Much
In times of financial hardship and uncertainty, many look to trading as a one-off quick fix to get rich quickly.
Typically this involves putting all of your hard earned money into a risky, volatile position on an asset in the hope of seeing huge returns.
But, this can be dangerous and usually results in a one-way ticket to Rekt City.
The solution? – Don’t bet the entire farm! Even for high net-worth individuals this is a given, only trade or ‘bet’ what you can afford to lose. A well balanced portfolio might allocate 1-2% of it’s wealth to higher risk, short term investments as a side-hustle.
Most traders agree that this is indeed a form of gambling however, with risk reduced to a small fraction of your overall wealth and with extensive research into the asset you are buying, a small amount of risk can be healthy as long as you are confident in your assessment and only bet what you can afford to lose.
#4 Investing Emotionally
Keeping a clear head during economic uncertainty is crucial for any investor. If you are making financial decisions based on emotion then you are likely headed for trouble.
If you are investing for the thrill of the risk because you’re upset or unhappy, things can quickly turn sour. Just like retail therapy, chasing that dopamine hit, it usually doesn’t last long and fails to address the issue or the problem at hand.
If you are investing in desperation with an all-or-nothing-mentality, rather than a long-term strategy, you increase your own chances for disappointment.
If you can avoid making financial decisions when emotionally charged you will stand a much better chance of staying in the game for the long-haul and therefore stand to benefit from your investment for a longer period of time. This is one of the most difficult and common mistakes when trading cryptocurrency as it can require a lot of mental energy to remain aware of your emotions.
#5 Not Doing Your Own Research
If you’re new to the world of cryptocurrency then you are likely getting most of your information from social media, Youtube or blogs such as this one! While there is a wealth of high quality information available (check out our list of the 5 Best Crypto YouTubers!) many people fail to do their own research and study the cryptocurrency market before investing.
It is important that you do your own research before investing in anything to avoid scams and learn to separate the hype form the actual value propositions of an asset or cryptocurrency.
If a coin is built on hype and you are caught up in shilling from influential figures, you are not making informed decisions and you become vulnerable to losing money or exposing yourself to unnecessary risk.
Always cross reference the information you hear online and make your own decisions before investing in cryptocurrency or any other asset or commodity.
A lack of research is among the most common mistakes trading cryptocurrency can present and is often overlooked by beginners.
Though it is not always possible to predict how a cryptocurrency might perform, there are several indicators which can help determine what causes the price of an asset to rise, fall or stagnate. This can be broken down simply into fundamental analysis and technical analysis.
If you want to learn more about all things Technical Analysis, check out Crypto Jebb’s YouTube channel here!
#6 Buying at the top, selling at the bottom
FOMO – Fear Of Missing Out, FUD – Fear Uncertainty and Doubt
We’ve all heard it – “buy low, sell high”, but the reality for most is FOMO-ing in at the top and FUD-ing out at the bottom.
What this usually means is that people buy cryptocurrency at it’s peak in terms of price and hype.
When the inevitable bull market comes to an abrupt end, they sell it at a huge loss due to uncertainty, fear and doubt. This is one of many frequent mistakes people make when trading cryptocurrency.
As with economies, currencies and markets across the world, the cryptocurrency market is cyclical. The terms ‘bull’ and ‘bear’ market are based on an understanding that the prices of assets fluctuate with the strength of a market or economy and usually follow some sort of trend or pattern.
Cryptocurrency markets often correlate to some extent with traditional stock markets. That is to say, when stock prices crash, it is not surprising that Bitcoin and other digital asset prices do so too.
For some, this can be a red flag to sell up and exit the market. For others this can signal an opportunity to invest in discounted assets.
Cryptocurrencies showed remarkable recovery throughout March and April after the Covid-19 pandemic brought economies across the world to a halt.
If you were lucky enough to be able to snatch some Bitcoin in March when it was below $4000 then you would now be experiencing more than double the return on your original investment before we’ve even entered the bull market.
Timing and patience are crucial in making the most of the opportunities presented during a crash.
#7 Not Storing Crypto Safely
By now you’ve probably heard a few stories of people who have been unfortunate to lose their cryptocurrency. Maybe you’re thinking to yourself – ‘that’s unfortunate but it won’t happen to me’.
The fact of the matter is that there are an ever-increasing number of ways for hackers, scammers and thieves to access your cryptocurrency. What many fail to realize is just how easy they could be making it for these people.
Hopefully you already have a passcode on your phone and have enabled two-factor authentication. If this is news to you then go read How to Keep your Bitcoin Safe before you do anything else!
While privacy and anonymity are key to safeguarding your crypto assets, many people fail to realize the importance of cold storage, or ‘hard’ wallets.
If you’re storing more than $100 or so on an exchange or wallet such as Coinbase or Binance, we strongly urge you to upgrade your security to a hard wallet.
If an exchange is hacked or shutdown, you risk losing your hard earned crypto assets and investments.
By using a safe cold-storage wallet like the Ledger Nano or Trezor wallets, you add another layer of privacy and security to your holdings. This makes it difficult for anyone to access your funds without your permission while keeping them safe from any potential issues which could be encountered when using exchange wallets.
By keeping your cryptocurrency in a cold storage wallet and keeping your back-up phrase secure, you heavily reduce the chance of falling victim to scams and fraud and increase your chance of avoiding most common mistakes trading cryptocurrency.
Thanks for stopping by and taking the time to read about the 7 Common Mistakes Trading Cryptocurrency – we hope you’ve learned something!
Let us know what you think in the comments below!
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Disclaimer: This is NOT financial advice. Beginners Crypto Guide does NOT OFFER formal nor informal financial advice and accepts no liability for such service. You should always do your own research before making any financial decisions.