Cryptocurrency trading can be a lucrative venture once you learn the ropes of the trade. It can be done at the comfort of your home as a full-time endeavor or as a part-time one to supplement your income. Like forex trading, crypto trading also has its share of dealing with volatility, risks, and price movements. Thus, if a crypto trader is not aware of the market sentiment and does not implement effective trading strategies, it can endanger the investment they are engaged in.
Furthermore, it’s not just the lack of a strategic approach that crypto traders often make mistakes. There are also important things and precautions that traders often overlook while conducting the trade. To help cryptocurrency traders get the most out of their investment, we’ll share here some common cryptocurrency trading mistakes that should be avoided.
Being Swayed by Crypto FOMO
The millennial term called fear of missing out (FOMO) has expanded its use not only in social media but also in crypto trading as well. In a general sense, FOMO is a feeling of insecurity or anxiety over the possibility of missing out on something, like an opportunity, trend, or event. In crypto trading, the volatile price movements of different cryptocurrencies can easily lead traders to buy into a coin after its price has reached a significant amount. It should be noted that in cryptocurrency exchange, there is a trend of price correction after a cryptocurrency price has reached its maximum value. Jumping on the buying bandwagon at the wrong time and without understanding the dynamics of the cryptocurrency pricing are the common mistakes new traders make. Even experienced traders can still be affected by crypto FOMO, especially if there is a significant price movement or buying trend in the market.
Joining Pump and Dump Groups
Pump and dump schemes are commonplace in crypto trading, and most often, they don’t benefit traders or investors at all. While it’s true that the crypto market is volatile, there are certain groups of investors who take advantage of this fact and try to influence the price movement in the market by buying a lot of cryptocurrencies to create a price increase and sell it to make a profit. This can be an attractive offer that often lures new traders in, without knowing the dealings of such groups.
Pump and dump groups often operate by making a coordinated effort to artificially drive up the price of a coin (pump) and before selling it to those who have been lured in (dump). Artificial movements like this tend to be unreliable, and investors who are lured by the price rise are left high and dry. As a word of caution, if you notice an unknown coin or a typically low-performing coin suddenly skyrocketing, you should be wary. It’s highly likely a part of a pump and dump (P&D) scheme, especially if some individuals or groups approach you to join the group or buy the coin.
Inadequate Information on Cryptocurrency Market Fundamentals
Just because you are making some good calls in the crypto trade doesn’t mean you already have it in the bag. While the crypto market does have constant movements and periods of highs and lows, your investment should not always follow the same pattern. Thus, it is important to get sufficient and reliable information about the trade. You have to do your research, though, as there are many self-proclaimed “gurus” and “experts” on YouTube, Facebook, Twitter, ads, and pop-ups in various sites who promote the best cryptocurrency and investment picks.
Do not just blindly follow their advice to avoid cryptocurrency frauds and scams. Even if you were to find genuine experts, they are most likely functioning as ambassadors who are paid to advertise a product or promote a certain coin. Some of them are high-profile and well-known individuals who are lending their influence and reputation to a cryptocurrency to give it an air of credibility.
As a trader, you have the right and duty to research your trading options and ask relevant questions about the cryptocurrency these experts are promoting. Inquire about the country where the cryptocurrency is based, the team building cryptocurrency, the coin’s operation history, the pricing history of the coin, and the coin’s economics. Get to know more about the promoters of the coin and their work experience as well. Joining a reliable investment group or forming one can help you ascertain some information and review your assumptions as you exchange ideas and inputs with other members.
Panic and Emotion-Driven Selling
This kind of crypto trading mistake runs in the same vein as FOMO-driven buying. Seeing your coin perform lower than you anticipated, take an unexpected nosedive, or even fall short of the increase you expected can be frustrating. Keep your composure and maintain a level-headed approach to your trading actions, especially when deciding to sell. You may be well aware that coins can dip down to very low percentages before bouncing back and skyrocketing to more than 200% gains.
If you are interested in long-term trading, panic selling isn’t always a good idea. You need to think and re-evaluate your position during times when your coin’s value starts to drop before deciding to sell. Ask yourself if there have been changes in the coin’s fundamentals, if there are announcements or movements that could have affected the price, or if the long-term vision of the coin is still worth holding on to. Your answers to these questions can help you make decisions that you won’t be regretting in the long run. To help you maintain a good financial outlook in crypto trading, remember the rule about investing money that you can afford to lose.
Should selling become a profitable move, it is wise not to go all-in with the move. Do not sell your entire stack and leave a percentage of your coin and wait for developments. A recommended trading strategy is to take back your initial investment and leave your earnings invested in the coin after a certain percentage gain. It minimizes the downside risk while still keeping the upside potential in your investment.
Inopportune Timing of Selling
Timing is also a crucial factor when it comes to cryptocurrency trading. Failing to sell at the right time is a common mistake new crypto traders make. Many are caught up in the hype of the rising price of the coins that they still wait too long, expecting the price to keep rising. In a way, it is a type of emotion-driven selling where the conditions are favorable, but the traders fail to take into account the timeline where their coin prices reach their peaks. This is another side of selling that traders make a mistake in.
What happens is the traders wait too long while the prices are high and then suddenly find that the prices have begun to dip, and they miss out on making big profits or fall short of their projected profit. A good countermeasure for this mistake is to set a selling price whether the trend moves up or down after selling. Another way is to sell cryptocurrencies in stages and cash out your profits to shield yourself from price dips.
Trading Based on Chance
While it’s true that the volatile market of cryptocurrencies makes trading in it look like a gamble, it doesn’t mean that you’ll have to rely too much on chance. Some traders make mistakes when they adopt this line of thinking. While chance can affect your gains and losses, somehow, it is still the knowledge and skill of the trade that matters most. Do not rely on gut feel or intuition when it comes to crucial trading decisions.
Instead, hone your observation skills and identify opportunities where you can make the most profit. Being in the know about updates in the industry can help you prepare yourself for possible movements in token price. Should the pricing trend go downward, you can brace yourself for it and take steps to minimize the loss. Should the movement be favorable and the pricing goes upward, you can take full advantage of it and decide on what to do with your profit.
Starting an investment should not be reliant on chance. Research is important, especially when it comes to the underlying technology of crypto and initial coin offerings (ICOs) for new coins in the market. Read the white paper thoroughly before you decide to invest in crypto tokens.
Overconfidence in Trading
Confidence in the crypto trade is a good thing, but too much of it can cost you dearly. As mentioned earlier, it can be tempting to make drastic moves when you see fantastic profits during the first few months of trading. Don’t let these successes get to your head. You can’t be too sure that the trading moves you applied will work every time. Remember that the crypto market is a very unpredictable asset trading market at the moment. There is no sure-fire way of forecasting price movements in the crypto market.
If you were able to make handsome profits with the help of the pieces of advice from cryptocurrency experts or gurus, be thankful for them but don’t place too much confidence in them. It is still best to study the market and assess the information from several reputable references rather than a single person.
Getting Dragged by Peer Pressure
Every cryptocurrency has its own supporting community. The communities that back cryptos comprise traders who regularly make predictions. While it’s to have your own research and predictions, joining a cryptocurrency trading community can also have benefits. Your market analysis and prediction can be bolstered with inputs from a trading community. Maintain your independent line of thought, and be sure to investigate the predictions if these are borne out of speculation or not. Dig deeper and search for facts that support such predictions, and don’t be swayed by fantastic claims and unsolicited advice.
Trading on the Wrong Platform
There are various crypto trading platforms available online, but you should be careful in sniffing out those that are not legit and fraudulent. Online trading platforms can help you expand your trading options and make informed trading decisions. Some also offer downloadable software to help make online trading more convenient trading even while you’re on the go.
A good trading platform should be secure and should have useful features such as an engaging and informative user interface, spread and trading fees, a wide variety of coins to trade, and reliable customer support. Cass App, KuCoin, and Plus500 are just a few platforms that new traders can use, while Coinbase, Binance, eToro, and Kraken are also some platforms preferred by experienced traders. Don’t just go for a trading platform that’s recommended by others. Choose one that meets your personal needs.
Insufficient Preparations in Crypto Portfolio Diversification
Diversifying is the right way of securing your portfolio and mitigating investment risks. In general, portfolio diversification is a strategy of investing in different assets or asset classes to minimize the risks of underperforming investments. That said, do not just settle for a single large market capital cryptocurrency investment. Invest in other small market capital coins as well to expand your portfolio. You should be well aware that crypto assets are volatile, and diversifying is an effective solution for protecting your money from market swings.
Be careful in selecting the small market capital coins or altcoins you diversify with, as several altcoins correlate with Bitcoin’s price movement. To achieve good diversification, choose coins with less correlation, such as Ripple’s XRP. Also, diversification is not just a measure of risk mitigation or hedging, but it’s also a way of expanding your profit potential. You can expect a boost in your returns once the cryptocurrencies you invested take off. The more alternate coins you invest in, the higher the chance that one or more of them will give you great returns when altcoin season comes.
Cryptocurrency trading is an exciting and challenging endeavor. You need to conduct your trading with caution and a strategic approach as there can be pitfalls and costly mistakes that can catch you by surprise, especially if you’re not prepared. It’s not enough to tread on safe grounds and practices. Knowing what to avoid can also help you make better decisions, set clear goals, and achieve outstanding profits.