Cryptocurrency investments have gained a lot of attention over the past several years. You hear about people making life-changing amounts of money, so you become interested in learning how to start yourself. And when 16% of Americans have now traded crypto, it’s hard not to get caught up in the hype.
The problem is the crypto market still isn’t stable. If you aren’t careful, you can put yourself at financial risk.
With how much risk there is in the crypto market, you need to understand what errors for new crypto traders to avoid. Below are seven common errors people make when buying and selling cryptocurrencies.
1. Investing a Lot of Money at Once
A common mistake beginners make when investing in crypto is trying to invest a lot of money at once. They see giant swings with a cryptocurrency coin and believe they can time the market on a low swing.
The problem is that this is hard to do and most likely won’t work — even for successful traders. What usually happens is a trader will misjudge the timing and miss potential profit or lose money when they buy too high.
Most people get better results by investing small amounts of money at a time. Set aside a monthly crypto investing budget and put a little in each month. This strategy will help you get exposure at several price points and gain profit over time.
2. Not Using Stop Losses
Since the crypto market is so volatile, it’s not uncommon for some cryptocurrency coins to see drastic drops in price. This can happen because of security issues, product failures, and overall market volatility.
While it is true that the price of many of these cryptocurrencies recovers over time, there’s no guarantee of a timeframe. This means you can sit on a cryptocurrency for some time and may not see it recover.
A stop loss protects you from this situation. Your crypto exchange platform allows you to enter a value you don’t want your holdings to fall below. If a coin drops below that point, your holdings will automatically sell to prevent you from losing more money.
3. Ignoring Trading Fees
You shouldn’t overlook trading fees when creating a crypto trading strategy. They won’t be a big deal if you’re dealing with larger amounts of money and holding crypto for longer periods. But if you have a short-term trading strategy, fees can make a big difference.
You’re often dealing with smaller profit trades when holding crypto short-term. You’re looking for tiny price fluctuations, so you’re counting on a larger number of small-profit trades to make money.
The size of the trading fees can significantly impact your trading strategy. Most exchanges have different fee structures, so examine what those fees are and if they will work for your strategy.
4. Ignoring Earning Opportunities
Depending on the cryptocurrency you buy, you have other opportunities to earn money. Because of that, you don’t want to let your crypto sit on an exchange when you can use it elsewhere.
One common way to earn crypto is with proof of stake cryptocurrencies. You stake your holdings on staking servers to help validate transactions. The server handling the transaction gets a fee, which then gets distributed to the crypto holders staking on the server.
There are also ways to earn free crypto if you have free time and are willing to do tasks. Check out cointiply.com to learn how to kick-start your crypto holdings.
5. Not Learning Trading Strategy
There is more than buying and selling crypto on a whim for the best crypto traders. There are different strategies and tools available to help you make smarter trading decisions.
Here are a few common strategies used today:
- Range trading
- High-frequency trading
- Technical analysis
- Passive investing
Each method has pros and cons, so learn more about each one. They all have different risk profiles too. Pick a method that fits your risk profile and gives you the best chance of success.
6. Following Pump and Dumps
It’s tempting for new traders to be attracted to groups that do pump-and-dump calls. These groups promise people looking for a quick profit a way to get it. The problem is that these groups are usually taking advantage of their members.
The owners of these groups can do this because they buy the coins they call before letting the group know. This lets them get in at a low price before other people buy.
Once the call is made and the price goes high. The people who got in first have a chance to sell before everyone. This results in a price crash that leaves people who purchased later hanging.
7. Trading on Emotion
One of the quickest ways to lose money in cryptocurrency is to trade on emotion. You may have a lot of money on the line, so it’s not uncommon to make mistakes because you don’t think through decisions carefully.
One common way this happens is when the market crashes. Everything goes down, so you panic and withdraw all your holdings. You cement your losses when this happens.
Another situation when this happens is when a trending cryptocurrency shows up. Everyone is excited about what it offers, so you make a rash decision to invest and not miss out. The problem is that many new crypto projects will fail and cause you to lose your investments.
Avoid Errors for New Crypto Traders
Although cryptocurrency investing can result in a lot of profit, that doesn’t mean you aren’t taking a significant risk when you start investing. The markets are highly volatile — which means you need to be on your game and make wise choices to avoid losing money.
One of the best ways to do well is to learn common errors for new crypto traders before investing. Now that you’ve read the problems above, you should be better positioned to see success and get crypto trading profits.
Do you want to learn more tips that will help you set yourself up for future financial success? Head back to the blog to learn more financial and investing advice.