The cryptocurrency market is notoriously volatile. For example, Bitcoin is known to have swings of over 40% in just 24 hours.
Those vicious turns mean you could suffer brutal losses if you make a mistake. But is it possible to participate in the market without losing your shirt? Yes.
The key is to learn from the mistakes of others. And there is no end to the list of miscues a newcomer could make. That means there’s plenty of examples for you to learn what not to do.
We’ve condensed the list down to the 10 most common errors. So if you want to kickstart your crypto trading career and avoid rookie errors, be on alert for the following crypto trading mistakes.
1. Not Practicing
Learning to trade crypto successfully is similar to learning any other skill. It takes practice.
We know, we know. That’s different from what you wanted to hear.
Every beginner guitarist imagines being Jimi Hendrix, mesmerizing a crowd of thousands. But few of those newbies ever picture themselves practicing like Hendrix.
Before basking in the spotlight, you have to spend time in the shadows. You have to spend countless hours away from the cheering crowds and the adulation, alone, practicing your craft.
The same goes for trading crypto. Before you can astonish the crypto world with your brilliant moves, you need to practice trading.
One of the best ways to do this is through paper trading. There are quite a few online trading simulators that will allow you to log valuable practice time.
But resist the temptation to only make a handful of trades before switching to using your real money. Stay with paper trading until the market undergoes a few significant shifts and you’re pleased with your return on investment. This will give you a realistic view of the gains or losses you would have experienced with actual currency.
And you can continue paper trading even after you begin using real money. After all, it isn’t as if a professional guitar player stops practicing just because his latest album went platinum.
2. Not Doing Research
What do you know about the crypto you want to purchase? Have you performed technical analysis? Who created it? What niche in the market is this crypto supposed to fill?
A mysterious coin can come out of nowhere and seem positioned to be competitive with more established currencies. This could be an indication that the coin is being used for one of the more popular con routines called pump and dump.
If you’ve ever bought penny stocks, you may be familiar with the term. The low cost of the accurately named penny stocks allows con artists to purchase large amounts of shares in a company.
The sudden purchases make investors believe that there must be something positive happening with the company so they, too, invest. The con artist then sells his now inflated stocks to those investors.
So first, he pumped up the value of the stock, and then he dumped it on his victims.
It’s the same sort of con with the price of cryptocurrencies. So be careful of the meteoric rise of little-known coins. Someone could be planning to leave you with near-worthless crypto.
3. Trusting One Source Too Much
It’s a great idea to subscribe to a crypto trading journal or newsletter that keeps you informed of the latest coin developments. In time, you’ll probably be drawn to a particular analyst who speaks in a style you enjoy. That’s natural.
But be careful. Don’t fall in love with one voice and ignore the others. Why?
It’s not always apparent when experts are expressing their honest opinions or promoting a coin in exchange for payment. But you can mitigate the risk of being persuaded by unscrupulous analysts if you habitually read and listen to a variety of voices.
Your goal is to develop into an independent investor who respects others’ opinions but doesn’t follow them blindly.
4. Following the Crowd
Okay, you’re not interested in a fly-by-night coin. Instead, you have your sights set on a well-established crypto.
But why has it caught your attention? Is it because it has suddenly become the darling of the crypto world? Are even non-investors talking about the coin?
It’s going to be tempting to join the crowd. If your coworkers, doctor, and 10-year-old nephew are all urging you to jump on the latest of the crypto market trends, it’s hard to say no.
But saying no could be financially rewarding. How?
When seemingly everyone is fighting for the opportunity to buy in on an investment, it’s often a sign that an investment opportunity has peaked or is about to peak. All bubbles burst.
True, it won’t be easy to keep your hands off your wallet when you hear another story about a trading becoming an overnight millionaire. But you’ll be proud of your self-control when later you hear the inevitable stories of people losing their entire savings.
5. Not Keeping Emotions Under Control
If you intend to be a long-time investor, you’ll need to master your emotions. Just as you will have the urge to join the crowd as prices rise, you’ll have the desire to abandon ship when prices dip.
That’s why it’s essential to understand why you’re investing in a particular coin. Do you believe the coin has solid backing? Do you foresee a continued desire and even need for the coin?
If so, it makes sense to reevaluate any second thoughts you may have when prices head downward.
Long-term investing is like human relationships. If you believe in the person because of who they fundamentally are, you’re not likely to end the relationship when they make minor mistakes.
6. Not Following a Plan
How much money can you afford to lose? At what price point do you want to enter the market? And what would trigger you to exit the market?
You can separate the newbies from the veterans by their investment plans. Veterans will have highly detailed plans. Newbies will likely have no plan at all.
So copy experienced investors. Take time to sketch out a plan so that you won’t become flustered in the heat of the moment.
7. Paying Expensive Broker Fees
Even millionaires care about brokerage fees because outrageous fees can quickly eat away at your profits.
So before you sign with a brokerage, do comparison shopping. Find the broker who offers the services you need but at a reasonable price.
Don’t make the newcomer mistake of believing that you’ll make such a killing in the market that fees won’t matter. One of the primary ways people become millionaires is by paying attention to the details, and that includes brokerage fees.
8. Trying to Recoup Money Quickly
Don’t be a bad loser. What’s a bad loser? In crypto trading, bad losers have trouble accepting reality. Instead, they try erasing bad trades by scoring bigger, better ones.
This seldom works. It hardly ever works.
What’s more likely is you will dig yourself deeper into debt. The smart course is to come to grips with your losses. Then take enough time to collect your thoughts and rein in your emotions.
Don’t return to trading until you have put the losses behind you. Only then can you proceed with a clear, logical mind toward your next and, we hope, more profitable trades.
9. Not Using Safeguards
Auto racing used to be far more dangerous than it is today. There were few, if any, obstructions between the cars and onlookers. Accidents were often catastrophic until safety barriers became standard.
If you don’t place safety barriers around your trades, the effect on your portfolio could likewise be disastrous.
Fortunately, one of the easiest and most effective barricades is readily available. You should always utilize the stop-loss feature on your crypto exchange.
If your trade goes badly, a stop-loss order will halt the bleeding. You’ll still lose money, but much less than you would without a stop-loss. So why take unnecessary chances?
10. Trying Advanced Techniques Too Soon
If you’ve never baked anything but want to give it a try, would you start with cookies or a four-tier wedding cake? The correct answer is obvious, but unfortunately, newcomers opt for the equivalent of the wedding cake when it comes to crypto trading.
For example, once people begin recording winning trades, they can get anxious to make even larger trades. Often they need to borrow the money they want to invest.
Investing more money before you’re ready is scary, but borrowing that money to invest is even more frightening. Investors refer to using borrowed money as margin trading.
If you’re unfamiliar with this term, that’s an indicator that you should spend more time in the shallow end of the pool before venturing into the deep water. Don’t rush the learning process.
Margin trades are for experienced traders because when they go wrong, they can wipe out your portfolio.
Other advanced techniques include trading multiple pairs and options for cryptocurrencies. Again, there will be plenty of time for these in the future. For now, stick with the basics.
Going Beyond Crypto Trading Mistakes
Which of the 10 crypto trading mistakes are you most glad we included in this article? Knowing what not to do can save a lot of heartaches as well as crypto.
Would you like to earn additional crypto even when you’re not trading? With our platform, you can earn crypto in your off-hours by playing games, completing tasks, taking surveys, and watching videos.
Interested? Take a moment to read how it works.