While cryptocurrency trading can be exciting and lucrative, most traders, especially inexperienced ones, may commit mistakes and fall into costly traps, causing them to lose money. The cryptocurrency investing space is highly volatile, and prices keep shifting as driven by production cost, supply and demand, internal governance, competition, social media hype, node count, and more.
Misinformation, confusion, impulsiveness, FUD (fear, uncertainty, and doubt), and impressionability can impact your investment decisions. Familiarizing yourself with the common crypto investing errors can help you find ways to escape them for safe trading and maximum profits. This article outlines eight common cryptocurrency trading mistakes to avoid.
Cryptocurrency Trading Mistakes to Avoid
- Not using stop loss
Considering how volatile the crypto market is, the value of risk management can’t be overstated. Implementing stop loss can help prevent irrational trading and restrict your trading downside.
When crypto trading, consider attaching a stop-loss order to your trades to automatically exit a position whenever the market goes against you. to set effective take-profit and stop-loss levels, evaluate the market’s current volatility and for how long you’ll hold your position.
If you’re taking a short position, set your stop-loss level above the selling price and expect the prices to go down.
When long trading, set your stop-loss below the entry cost and anticipate price increments. Stop loss is an excellent way to prevent premature exits, avoid continuous monitoring, and protect accumulated profits.
Failure to use stop loss results in irrational trading and increases trading downside, increasing losses and the risk of your account getting wiped out. This may land you in financial hardship, making it challenging to cater to your family’s basic needs.
However, familiarizing yourself with the Ontario Works payment calendar or that of your region’s assistance program can help you find financial relief.
- Lack of a trading strategy
A cryptocurrency trading strategy is a technique to develop to attain profitable returns when investing in crypto markets.
While executing your trades based on gut feeling may result in huge profits, you can’t replicate consistently positive results every time you trade. Cryptocurrency prices fluctuate and may follow a predictable pattern, calling for a strategic trading approach.
Your crypto trading technique should indicate specifications for the trades you’ll make, when to make and exit them, and the amount of capital you can afford to risk for every position.
Scalping, swing trading, day trading, arbitrage trading, and buy and hold are strategies to use you can leverage. Research to determine when to use each of them and when it’s safe to exit.
- Following social media and internet hype
Crypto traders, mainly newbies, fall for internet and social media hype regarding crypto trading. Following anything that the most significant number of crypto fans are talking about when making investment decisions can be disastrous, causing you losses.
Consider looking for more impartial and objective information sources like websites, or do your own research and critical analysis before trading in cryptocurrency. This will help you make wise investment decisions for maximum profits.
- Not learning crypto basics
Newbie cryptocurrency traders can easily be attracted by every hype surrounding the crypto market. However, crypto trading requires you to understand every asset class plus how it functions deeply.
Trading in digital assets you don’t understand or investing in cryptocurrency without learning how it works is unwise and dangerous. Take time and research and educate yourself on various cryptocurrency projects and the aim of every company to make yourself a better investor or trader.
- Falling for crypto scams
According to a study, above 46,000 people reported crypto scams between the start of 2021 and March 2022, with that year alone reporting $680 million in crypto scam losses. An additional $329 million was lost to cryptocurrency scams during the first three months of 2022.
This shows just how prevalent crypto scams are and how important it is to spot and avoid them. Crypto scammers use sophisticated phishing strategies to access your wallet and persuade you to transfer money to their wallets.
These scams can be carried out via messaging apps or emails by criminals purporting to have your best interests at heart.
You can compromise your online crypto wallet by connecting it to an app allowing it access to your funds. While this may be a common practice for most cryptocurrency applications, scammers leverage this trick to drain crypto wallets.
Avoid connecting your digital wallet to unreliable apps and consider storing your money in an offline hardware wallet. Additionally, never share your seed phrase, private keys, or wallet password with anyone.
- Keeping cryptocurrency in digital wallets
Being a digital currency, cryptocurrency requires an online wallet for storage. While using a digital wallet can be convenient, it’s riskier than keeping your cryptocurrency offline. This is because digital wallets are more susceptible to vulnerabilities, such as hacking, and hackers may drain them via crypto scams.
An offline hardware wallet, a USB stick with sophisticated software and hardware encryption to safeguard your cryptocurrency private keys, is the best place to store your crypto.
- Making a lot of trades
Making too many trades is a mistake that combines panic selling and FOMO (fear of missing out). With these tendencies, traders hold one cryptocurrency, sell it for another, hoping to make substantial gains, and trade it for a third one, and the cycle continues.
With this approach, you aren’t guaranteed to earn more profit. However, you’re sure to pay more exchange fees for every new transaction you make.
Combining this with the probability that you may exit a token at a loss and a second one at another loss, the compounded losses and costs may result in your investment failing. Before investing in cryptocurrency, begin with a clear idea of the most robust cryptos and stick to them.
- Failure to set an exit strategy
Due to its volatility, the crypto market is prone to substantial price swings. This is why, as a crypto investor, you must know when to sell your investment and the kind of return to expect to reduce possible risk and increase potential returns.
With a cryptocurrency exit strategy, you can set the conditions for selling your crypto holdings. It lets you earn more than your original investment. However, the exit strategy should also safeguard you from huge losses should the market shift against you.
If not thoughtfully done, crypto investing may result in huge losses. Consider avoiding these cryptocurrency trading mistakes to earn more.
Read Also: How to Start Trading Cryptocurrency