Table of Contents
What is crypto trading for? You all must be aware of the answer, but to specify, it is the buying and selling of digital money for maximum profit. However, it also comes with money-losing risks on the cost of minute mistakes. It does not matter whether you are an experienced crypto trader or a beginner aiming to start fresh; knowing what mistakes to avoid when trading crypto will only lead you to earn endlessly. So, read this guide to the end and note the crypto mistakes for a successful trade game.
In this article, you will learn some common mistakes to avoid when trading crypto for beginners and experienced traders. In addition, it mentions some easy-going solutions that let trading go smoothly without encountering any errors.
Mistakes in Crypto Trading
Avoiding mistakes is no longer a nightmare when cryptocurrency trading. There are many tips and mindful tricks to keep in mind.
Incomplete Research
Since the profits and benefits of cryptocurrency are undeniable, everyone is quickly attracted to it without a second thought. But did you know it comes with irreversible losses due to the lack of knowledge? The crypto world is innovative, unique, and volatile. In no time, market trends shift and make or break the deal of your implemented trading strategy.
Educating yourself and researching crypto, its types, how to do trading, and the processing of transactions is essential. Additionally, It would be best if you stopped relying on what social media or rumors convey. Doing so will prevent poor decision-making and investment loss. You must be cautious of investing in what you understand while refraining from what you do not. Remember, knowledge is the key to success. The more you research crypto and blockchain technology, the greater the success rate will be.
Solutions:
- Start research from crypto basics.
- Prioritize your research, leaving what is in social media and rumors.
- Refrain from misinformation and crypto scams.
- Practice what you learn with simulated trading.
- Establish a fool-proof trading plan and get set for hedging trading.
- Refrain from making investments based on media excitement or celebrity support.
Avoid Emotional Decision
You must have heard that business cannot be pursued with emotions. The same is true for cryptocurrency trading. Emotional decisions in response to price fluctuations or failed trading strategies are useless. It will incur losses you cannot imagine.
Since the crypto world is unpredictable, making an emotional decision triggers the situation. It does not matter whether the price goes up or down; sticking to wise decisions releases a sense of panic and impulsiveness. You may not know that a decline in asset value becomes a chance to buy more.
Solutions:
- Pay attention to diversifying your investments.
- Apply a Dollar-Cost averaging to invest a fixed amount for a fixed time.
- Use the Stop-loss management tool.
- Keep your emotions- game strong.
Ignoring Fees
The scenario is that you register in a crypto exchange for trading. What do you think it does not cost you anything? Like every type of trading, you have a fee to pay to initiate buying and selling of cryptocurrencies.
While pro investors are aware of the point, new traders must take it into account. If ignored, these fees accumulate and demand a lump sum from your profit. Except for blockchain fees and trading fees, which vary depending on the cryptocurrency, exchange, and network congestion, exchange fees charge up to 1% per transaction, and credit card fees may go up to 3% or more.
Solutions:
It would be best if your investment plan included an assigned section for all fees, such as transaction, exchange, and withdrawal fees. The benefit is that they will not affect your gains.
Keeping Crypto in Virtual Wallets
How do you store your cryptocurrency after profitable trading? This is important because the manner may become your ultimate mistake, causing you to lose what you earn. As you know, cryptocurrencies use digital/online wallets. Sticking to this concept no longer remains safe. Why? Online wallets are prone to theft and hacking. If you do not want your savings to get shifted into the hands of scammers, think of the solution given below.
Solutions:
An offline hardware wallet is a far safer option than others to keep your money within the reach of your hands. The offline wallet can be anything, such as a USB stick having strong encryption, two-factor authentication, and a strong password. In addition, there are several tips you should follow:
- Always consider a hardware wallet to save your digital money.
- Avoid connecting your online wallet to an unworthy app to protect it from scams.
- Ensure the wallet you select is secure.
- Protect and memorize the wallet’s private keys and recovery phrases.
- Verify wallet addresses twice to prevent errors that could lead to money loss.
Ignore Diversification
Crypto investment is not easy, as seen from the aerial view. It requires portfolio diversification, and ignoring it invites potential risks and losses. You must wonder what this term means. For an experienced trader, it is not new, but for a beginner, it is.
In crypto, diversification means spreading your investment or money across different cryptocurrencies. So that if the value of one declines, the second one compensates for it. In short, diversification in crypto prevents your investments from going all at once, ensures stability, and aids in achieving long-term goals. Remember, you must invest in different cryptocurrencies to save your money.
Solutions:
- Never ignore the diversification of crypto portfolios.
- Adjust your investments to match how much risk you can handle.
- Regularly check and update your investments and ensure whether they fit your plan.
Neglecting Risk Management Tools
It would be right to say that cryptocurrency trading is risky. But not anymore. The innovative domain has now devised some risk management tools that limit potential losses. Even then, if you complain about facing potential losses during trading, you must have ignored these tools.
Also, you must have noticed that crypto prices can change at any minute without handing over any guarantee of its bounce back. You must not commit this mistake and keep using these tools to gain profit without losing much. These risk management tools limit losses. At the same time, Cross margin vs. isolated margin serves as a risk management strategy when leveraged crypto trading, stop-loss order is another tool that lets you save money by automatically selling an asset when its price declines.
Solutions:
- Use a stop-loss risk management tool to automate selling.
- Get yourself protected from market volatility through these tools.
- Establish profit-taking limits to protect your gains.
Archive Crypto Records
Archiving crypto records is always beneficial. You have all the necessary information about tracking, expenses, trading strategy, and tax reports. On the other hand, if you ignore keeping track of the records, it won't be easy to recover losses, if any.
Solutions:
Keeping track of the crypto records is essential. It gives you two primary benefits. Firstly, it serves as the documentation of all your crypto transactions, plus the date and time of asset buying and selling. Secondly, it provides you with an opportunity to reduce tax liabilities.
Misuse Leverage Strategy
Misusing leverage to gain profits can lead to expensive mistakes. You can use leverage for trading purposes because all it can do is increase the chance of profits while not ignoring losses with the same frequency. It would be best if you kept in mind that you use borrowed money, and any wrong step can invite a margin call.
Solutions:
- Beginners must avoid using leverage.
- New investors must understand leverage-associated risks.
- Pro investors use risk management tools for leveraging crypto
Believe in only Technical Analysis
Technical analysis holds exceptional significance in crypto trading. You may not know, but it opens the door to knowledge regarding crypto trading charts, indicators, and various patterns. Plus, the information it provides is correct most of the time. There are times when the result flips without notifying you, or you unintentionally misinterpret the data it provides.
Trusting on technical analysis seems logical when you know that the market is in your favor. However, relying only on it may cost you irreversible losses due to cryptocurrencies’ unique nature. To make your decisions informed and match your investment goals, notice these solutions.
Solutions:
- Begin with identifying support and resistance levels
- Understand and learn basic crypto market dynamics
- Eliminate those trends that are not trending rather than misinterpreting them.
- Take your time and practice to learn technical analysis.
Implementing a Complicated Trading Approach
Many new investors implement overcomplicated trading approaches without fully grasping them. The result is the opposite of what you think. Additionally, it further confuses the process and prevents enough gain.
Solution:
- Always start with a basic trading approach.
- Prioritize trading strategies that match your temperament.
- Avoid bad judgments in crypto trading.
Conclusion
Crypto trading’s agenda is to create endless opportunities to earn a profit, and undoubtedly, it comes up with flying colors. The not-so-new domain makes its paths and attracts many traders to join the community to get the most out of it. The only way you can mark your survival in this dynamic world is by identifying the mistakes and refraining from committing them. This guide is all about mistakes to avoid when trading crypto. Remember, letting go of the mistakes by learning the solutions is the ultimate key. Do not waste any minutes and get your hands on these suggestions.
FAQs
Do Crypto Traders Lose Money?
Yes, crypto traders often lose their investments. The most common mistakes that contribute to this loss are lack of information, misusing trading approaches, and forgetting passwords for crypto wallets.
How to Avoid Losses in Crypto?
The only way you can avoid losses in crypto is by using risk management tools. These tools effectively limit losses and maintain a stable environment. Some famous ones are stop-loss orders, diversification of portfolio, and cross-margin.
How to Know if Crypto is Going Up?
The value of a cryptocurrency increases when demand is high, and supply is low. On the other hand, the value decreases when demand is low and supply is high.
