Have you wondered if you should invest in cryptocurrency and are unsure if you should get started? It’s not surprising if you’re in this situation.
When 70 million people now have a blockchain wallet, cryptocurrency has gained enormous popularity over the years. But at the same time, investing in crypto projects still carries risks. However, that doesn’t mean you should avoid that risk and not invest.
You must avoid all the common mistakes for crypto traders if you don’t want to put your money at more risk. Below are 10 common mistakes traders make that will ruin their return on investment.
1. Not Understanding the Technology
There’s more to cryptocurrency than the price. Some currencies, like Bitcoin, don’t have many uses outside of being used to transfer money, but other cryptocurrencies don’t work that way. Many of them have unique use cases that make them valuable in other ways.
If all you do is buy on price and don’t consider use cases, you won’t be able to make smart trading decisions. What makes a cryptocurrency special that will cause it to go up in the future? Knowing this information will help you make longer-term bets in the market. Learn all you can about the cryptocurrency you buy to figure out why people will use it in practice. Check out this here to learn more about a cryptocurrency chain you may not know about yet.
2. Not Testing Trades
One big mistake cryptocurrency traders make is starting with real money before testing trading options. Trading platforms can be complex, which means new traders may not know how to navigate the interface to make the most use of it. That can lead to trading mistakes and misreading charts. You must test these platforms before trading with your real money.
There are several locations online that mimic the interfaces of common trading platforms. Make test trades on these platforms to get a feel for how trading cryptocurrency works before you get started with real money. If you can’t find any test platforms to test your skills, find videos demonstrating trades to understand better how they work.
3. Trading on the Wrong Platform
Finding the right platform to trade on if you want to find success in crypto. There are countless exchanges and DeFi networks out there that allow you to make trades. However, not all of them have the same reputation.
Your funds are at risk if you sign up for a platform that doesn’t do enough to protect its users. Reports show that some losses because of crypto hacks have recently reached $1.9 billion in a short amount of time. You can avoid losing your assets by working with trusted websites. Look at the history of websites that offer trading to see if they have had issues in the past. Try to stick with the biggest platforms with good histories to avoid falling victim to crypto exchange hacks.
4. Ignoring Trading Fees
You can’t ignore trading fees if you make a ton of short-term trades. A trade may seem great in a vacuum, but you may end up cutting your profit or making losing trades if you discount trading fees. The fees you see will vary based on the platform you use. It can be anything from a few cents per trade to a percentage of the total amount you trade.
If you trade on DeFi platforms, you must also consider the transaction fees for sending money. If you trade in a decentralized exchange, you’ll need to pay trading fees for several swaps to get to the cryptocurrency you’re trading. In many cases, these fees are much more than the ones you’ll see on a centralized exchange since those exchanges absorb many of the trading fees.
5. Looking for Pump and Dumps
There are some parts of the internet that makes calls on different cryptocurrencies. They get a ton of people to join those groups and tell them to buy at a certain time. They do this because they hope that buying early will lead to a quick win and more money.
However, that usually doesn’t happen. Most people running these groups buy these cryptocurrencies ahead of time and dump them on the people buying. The chances of making money doing this aren’t high. Instead, stick to a fundamental analysis of your options and pick ones you believe will make a profit over time.
6. Having no Strategy
Some people decide to jump straight into trading cryptocurrency and trade straight away to get started. However, doing things this way is nothing more than a gamble. It makes more sense to create a strategy that works long-term.
Many people buy and hold coins with the expectation of going up. They invest small amounts of money over time at different price points to get exposure at several levels. Your goal is to cash out in the future when your cryptocurrency goes up.
You can also make short-term trades on price volatility and try to make a profit on those swings. These trades can last anywhere between a few hours to a few weeks. You’ll need to learn how to analyze technical charts to figure out how to do this.
7. Panicking on Volatility
The price of the cryptocurrency can drastically change in a short amount of time. It can be because of bad news that causes people to lose faith in a coin or a general cryptocurrency market crash. Experiencing this can be jarring for people and cause them to sell their holdings immediately.
This is a mistake in most situations. Unless you’re investing in non-serious projects, the chances are good that the current price you see is temporary. If you wait, you’ll probably recover and return to the price you first bought a cryptocurrency.
You cement your losses when you sell, so try not to panic unless there’s no way for a project to recover. Of course, there’s no telling how long that process will take. If you want to avoid losses too large and are fine with losing money, you can always set a stop loss on your crypto trading platform to automatically sell an asset if it goes too low.
8. Sticking With One Cryptocurrency
There are hundreds of popular cryptocurrencies at this point. Some of them are basic and only offer trading functionality. Others have application ecosystems that allow cryptocurrency developers to develop apps on the blockchain.
That’s why it’s a mistake only to pick one cryptocurrency and not explore it further. Countless new products are released all the time, and existing ones experience periods of great growth. You’re missing out on many opportunities and taking on more risk by not diversifying your investments. See what else is out there and put more of your portfolio into other projects.
9. Not Knowing When to Exit
The chances are that you’re getting into crypto to make a profit. You’ll create a crypto trading strategy that maximizes the amount you make in the shortest time possible. However, everything you earn isn’t worth much if you never take it out to enjoy your success.
Don’t hesitate to take out a profit when you have a chance. As mentioned above, the crypto market is volatile. You never know when something will happen that will cause you to lose your profit and money.
You’ll have less risk if you gradually take money out. You can always invest again if prices go low, so make sure to enjoy the money you make. It’s also possible to spend your crypto today with debit cards if you don’t want to make the conversion to your bank account.
10. Keeping Everything on an Exchange
Cryptocurrency exchanges do a great job of providing trading options. You can make trades in a few seconds and instantly get what you traded. However, keeping everything on an exchange does carry risk.
You don’t have complete control over your holdings on an exchange. The exchange can lock your funds, or a hacker can infiltrate the exchange and steal your money. If you want to be sure your holdings are safe, you need a private wallet. Nobody can access a private wallet if they don’t have the seed phrase. Move the holdings you plan to keep and not trade to your private wallet to keep them safe.
Do Everything Possible to Avoid Common Mistakes for Crypto Traders
You’re taking a chance when you sign up for a crypto trading platform. There can be a lot of volatility in the market, so it’s easy to make mistakes that cost you your money.
If you want to reduce the chances of making bad trades, you need to understand the common mistakes for crypto traders. Now that you know more about what not to do in crypto markets, you’re in a better position to make smart trades and make crypto trading profits. Are you looking for more financial advice that will help you put your money to use? Check out the blog to learn more about investing your cash.