Before you rush into cryptos, you need to realize that cryptocurrencies are digital assets that are highly volatile, and the chances of earning big or going bust are equal.
The mistakes mentioned below can help you gain a better perspective of the cryptocurrency market so that you don’t repeat them.
Since cryptocurrency is a relatively new technology, research becomes even more important when investing.
Instead of being influenced by family or videos on YouTube, take the time to look up the coin you are considering buying yourself. You might come across a lot of hidden gems just by doing your homework.
Doing your research will not only teach you more about the coins but will also boost your confidence.
It is also very important to be careful not to be consumed by the hypetrain that emerges around dfferent alt coins from time to time.
Investing in One Coin
Many people get to put all their money on one coin, say bitcoin or Ether.
Instead of putting all of your money in one basket, it is a smart idea to diversify your portfolio and invest your money in a few different coins.
If you invest all of your money in one coin then you are going to be at the mercy of that one coin vs having several coins where if one doesn’t do as well as the others, it can balance out any losses you might have.
Buying Because it is Cheap
You do not want to buy coins just because they are extremely cheap without doing your research.
Take a look at other factors, for example:
- What is the purpose of the coin?
- What is the maximum supply of coins available?
Understanding the Market Cap (coins available) is going to make a difference in how valuable the coin can become in the future.
Buying the Wrong Coin
One of the biggest mistakes new investors make is buying the wrong coin.
Just because it has ‘Bitcoin’ in its name doesn’t mean it’s actually Bitcoin.
Here are some examples of coins with the word ‘Bitcoin’ on them:
- Bitcoin Cash
- Bitcoin Gold
- Bitcoin SV
- Bitcoin Private
and dozens of other direct offshoots of the original cryptocurrency that have the word “Bitcoin” in their names.
That’s not to say that these offshoots are bad or scams, it’s just that they aren’t the original bitcoin that has become widely traded and quoted.
However, if you do buy the wrong coin, it isn’t the end of the world. You can always sell it back and buy the right one, hopefully at a profit.
Buying More than You Can Afford to Loose
One major downfall for rookies is investing money they need to pay their necessities with such as rent or their mortgage payment into crypto.
Investing money you can’t afford to lose can put you in a bind if the coin value drops dramatically after you buy it.
Of course, you never know when coins will go up or down in value but it is best to be safe by only investing spare money that you can afford to lose in a worst-case scenario.
The main purpose of crypto trading is to buy low and sell high, however, many people are doing it the wrong way, often after being provoked by FOMO (fear of missing out) and the aforementioned FUD (fear, uncertainty, doubt).
Now, this is how this scenario can play out.
Let’s say you saw the price of a coin going up on a daily chart and you jump in to buy it due to FOMO.
Unfortunately, the coin’s value dropped shortly after you bought it, and because you won’t want to lose any more money to the dip, you ended up selling off the coin right afterwards or a few days later during the dip.
To avoid this, study the market and charts to see when the price drops – usually, a drop will signal a good time to buy.
SEE ALSO: How to Select a Cryptocurrency to Trade
You Are Not Super Careful
Believe it or not, many new and veteran cryptocurrency traders have lost money sending their coins to the wrong addresses.
Unlike a bank wire transfer that can be halted or a check that can be canceled, there’s often no recourse if you make a fat-finger error.
It is therefore important to check an address several times, twice or thrice, when making a transaction.
For example, someone can easily send USDT to a USDC address.
A cryptocurrency address is a string of alphanumeric characters that represents a wallet, exchange, or similar blockchain-specific address. All wallet and exchange addresses are unique and denote the location of the sender and receiver on the blockchain network.
Forgetting Your Password / Key
While there will only be 21 million bitcoins that will ever be mined, less will actually be available to trade because many of them are simply lost forever as people have forgotten the passwords to their digital wallet.
You often can’t call somebody to reset your password, if you forget it or lose it then you’re locked out.
Around 20% of the Bitcoins mined so far are lost in stranded wallets, according to Chainalysis, a cryptocurrency data firm.
Therefore, how you store your password is critical and needs to be thought out in advance before you start trading.
Lack of an Exit Strategy
Most crypto traders do not know how to plan their exit strategy even when they have made a bulk of profit. This refers to the moment at which you either take your profit or stop your losses in a trade.
Remember, crypto is nobody’s bank and it might fall or increase in price at any time. To be a successful trader, you must learn how to secure your profits.
To implement an exit strategy, you can enable the stop-loss tool which is available on major exchanges to help mitigate your losses.
The Stop-loss is a trading tool designed to limit the maximum loss of a trade by automatically liquidating assets once the market price reaches a specified value.
Also, when it comes to profit taking, don’t get caught up in FUD (fear, uncertainty, doubt) or greed. Be confident to exit when you have made some profit, which like we already said, is much more possible if you have done your research.
One other tip for how to exit your winnings is taking a profit at a fixed interval. You can decide, for example, to sell 20% of your BTC profit each time the price doubles in price.
Using the Wrong Exchange
Choosing the wrong exchange can negatively impact your trading experience for a lifetime. Aside from affecting your profit, you run the risk of losing your entire crypto portfolio if you use a scam exchange.
For this reason, you need to ensure that the exchange you are about to deposit your money in is actually safe, reputable, and secure.
Here are a few tips to help you find a secure exchange:
- Check out the platform’s online reviews on blogs and social media sites like Reddit
- Look for exchanges with a good trust score, trading volume, and liquidity
- Do not be quick to use unpopular crypto exchanges
In addition, it is important not to ignore an exchange’s trading fee. This is because high trading fees can deplete a significant portion of your trading profits.
So, if you want to avoid this, you should trade on exchanges with low trading fees to keep your profits optimal. Also, go for exchanges that are user-friendly as it is one of the factors that can help you trade effectively.
Investing in cryptocurrencies can be an excellent opportunity for financial gain. However, you want to make sure you reduce your room for error.
Watch out for these mistakes when you start investing in cryptocurrencies.