If you’re here, we’re assuming that you’re one of the countless traders who has decided to hop on the cryptocurrency train within the last few years. This isn’t surprising, as crypto trading has become more trusted and the price has reached all-time highs several times lately. There are also some bigshot names in trading that have promoted the advantages of investing in cryptocurrencies, including Tesla CEO Elon Musk. Of course, understanding how to trade cryptocurrency is just as important as understanding how NOT to trade it. If you want to be successful as a cryptocurrency trader, you’ll need to avoid these common mistakes to get the best results.
Mistake #1: Starting with Zero Practice
Traders should always take advantage of the ability to practice trading for free on a demo account, especially if they are considering trading with a completely new asset. If you’ve never traded Bitcoin, Litecoin, or any type of cryptocurrency before, you’ll definitely want to get some practice using your trading strategy to ensure that your endeavors will be profitable. If things don’t go according to expectations, you’ll know that something needs to change without taking a hit to your wallet in the process.
Mistake #2: Trading the Wrong Cryptocurrencies
Bitcoin has always been the top coin that comes to mind when cryptocurrencies are mentioned, however, there are thousands of options out there. While it’s a good idea to diversify your investment portfolio with different types of assets and with a few other cryptocurrencies, be careful to avoid the least popular options. Some of the lesser-known cryptocurrencies are practically worthless, so always do your research before taking a chance with any questionable options.
Mistake #3: Risking too Much
One of the most common beginner trader mistakes involves risking too much money in general, whether it be when trading currency pairs, cryptocurrencies, or any other asset. Most experts will tell you to limit the risk you take per trade to only a small percentage of your account balance, somewhere around 0.5% to 1%. This tip is especially helpful if you aren’t used to working with crypto options, as it will limit the amount you lose if you do make a few bad investments in the beginning.
Mistake #4: Failing to use a Stop Loss
You should never add to a losing trade – some of the best advice for beginner traders is to set a stop loss and move on. It isn’t a good idea to keep going if a trade moves against you, and many beginners have a hard time accepting defeat when things just don’t go according to plan.
Mistake #5: Panicking
The cryptocurrency market is no stranger to volatility, which isn’t exactly reassuring for beginner investors. Often times, the sharp swing in prices make beginners panic and sell at the wrong times. Even when prices dip low, they tend to rise again with cryptocurrencies, resulting in a loss from selling too soon. The best way to avoid this is to set a take profit and stop loss and then to leave the trade alone.
Mistake #6: Assuming that Cheaper Coins are Better Investments
You shouldn’t assume that it’s a good idea to invest in any specific cryptocurrency solely because the price is very low at the moment. Instead of assuming that low prices will lead to profits, you should make investment choices based on evidence that the coin will perform well overall. You should always follow the news and stay updated on crypto-based developments so that these ups and downs don’t catch you by surprise.
Mistake #7: Pump & Dump Schemes
A typical pump & dump involves investors agreeing to buy and sell a particular asset while communicating over a message board or some other type of social platform. The idea is that everyone buying at the same time will cause a spike in activity, which will help those involved to make money. Unfortunately, those that watch these conversations and attempt to sell at the right time usually miss out and wind up with a coin that has dropped in value.