How to Avoid the Most Common Cryptocurrency Trading Mistakes

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Cryptocurrency trading is becoming more popular as more and more people are looking to invest in cryptocurrency. According to a study, over 10.2% of people across the globe using the internet today own some form of cryptocurrency.

However, many first-time investors often make the same mistakes repeatedly. Before jumping into the industry, keep in mind that the cryptocurrency market never forgives even the most honest mistake.

Keeping this mantra in your mind at all times will help you avoid blunders that could cost you thousands of dollars down the road. The best way to learn how to trade is to learn from your mistakes and those of others.

Below are some of the most common cryptocurrency trading mistakes and how you can avoid them:

Jumping in and Using Real Money

Never use real money to trade cryptocurrency before you’re fully ready. It is important to remember that there are many different types of cryptocurrency, and each one works on its own blockchain network. This can be confusing for newcomers, and it is often hard to keep track of all the different currencies.

Before you start trading with real money, it is important to understand the different types of cryptocurrency and how they work. Additionally, trading is a skill that requires hours of practice to perfect. Fortunately, there are many demo accounts online to help you get started.

Demo accounts allow you to trade with virtual currency so that you can practice without putting your own money at risk. Many exchanges offer demo accounts, and they can be a great way to learn the ropes of cryptocurrency trading.

Once you feel comfortable with the basics, you can start thinking about using real money.

Failure to Track Your Investment

With so many different currencies and exchanges, it can be easy to lose track of what you have invested. Tracking your investments will help you know where your money is and how it’s doing. You can track your investments by setting up a spreadsheet or using a Cryptocurrency portfolio tracker.

There are a few different things you need to track when it comes to your investment. The first is the price of the currency. You need to know how much each coin is worth to see how your investment is doing.

Cryptocurrency Price Live

The other thing you should track is the total value of your investment. This is the value of all the coins you own, minus any fees or commissions. You should also keep a record of your profits or losses. This is the difference between the price you paid for a coin and the current price.

If the current price is higher than what you paid, you have made a profit. If it is lower, you have made a loss. You should also track the amount of each currency you own to see how your investment is diversified.

Not Using Stop-Loss for Risk Management

Most first-time investors don’t take advantage of the stop-loss features on their exchanges. This often happens because they either don’t understand how these tools work or think they don’t need them.

Stop-loss is an order you can place with your broker to sell your position if it reaches a certain price. This is a valuable tool because it can help you limit your losses if the price of the asset falls.

For example, you bought Bitcoin at $12,000 and set a stop-loss order for $11,500. If the price of Bitcoin falls to $11,500, your stop-loss order will be triggered, and your position will be sold.

Not Diversifying Your Investment Portfolio

Failure to diversify your investment portfolio is a costly mistake that will leave you more vulnerable to the market’s volatility. If you don’t diversify your portfolio, you are putting all your eggs in one basket.

This is a high-risk strategy that is not recommended for anyone new to cryptocurrency trading.

Remember that blockchain technology and distributed ledger technology are still in their infancy. Hence, there are many unknowns regarding these technologies and how the mainstream will adopt them in the future.

This is why it is important to diversify your investment portfolio across different cryptocurrencies. By doing this, you are hedging your bets and giving yourself a better chance of weathering the market’s volatility.

Paying Extremely High Brokerage Fees

In traditional stock trading, brokerage fees can be as high as several percentage points of the trade value. That’s because there is a centralized exchange through which all trades must be routed. However, this isn’t the case with cryptocurrency trading.

Instead, blockchain technology enables a distributed ledger system that doesn’t require a central exchange. As a result, blockchain-based exchanges can offer much lower fees—sometimes as low as 0.05% of the trade value.

If you’re paying high fees to trade cryptocurrency, you’re essentially giving away money that you could otherwise use to grow your portfolio. So, be sure to check the fee structure of any exchange before trading. And, if you can find an exchange with low fees, you’ll save yourself a lot of money in the long run.

Failure to Conduct Fundamental Analysis

Fundamental analysis is the process of evaluating security to determine its intrinsic value. To properly assess the inherent value of a blockchain project, you must first understand the underlying blockchain technology and distributed ledger technology.

Once you have a firm understanding of these technologies, you can begin to analyze the blockchain project’s code, development team, roadmap, and partnerships.

If you fail to conduct a thorough fundamental analysis of a blockchain project, you are at risk of investing in a project that is not built on solid foundations and is unlikely to succeed in the long term.

Not Having a Cryptocurrency Trading Journal

A trading journal is an essential tool for any trader, and it can be especially helpful for those trading cryptocurrencies. A trading journal can help you track your progress and identify patterns in your trading.

Armed with this information, you can make better decisions about your future investments. If you don’t have a trading journal, start one today.

Not Doing Your Own Research

Don’t jump into the market blind; do your own research. This is especially key for cryptocurrencies because of their volatile and unpredictable nature. Before investing in any cryptocurrency, ensure you understand how it works and what factors could affect its price.

When researching more about the market, ensure you focus on the following areas:

  • The team behind the project
  • The technology and what problem it solves
  • The tokenomics and how it works within the ecosystem
  • The type of community that exists around the currency

If you don’t have time to do your research, there are plenty of resources, like this blog, that can provide you with the information you need to make informed decisions. However, don’t rely on a single source; always cross-reference to get a well-rounded view of the market.

Not Working With a Reputable Exchange

There are over 600 cryptocurrency exchanges out there. However, not all of them are reputable. Working with a reputable exchange is crucial to your success as a trader. Some things to look for when choosing an exchange include:

  • Security measures
  • Transaction fees
  • Ease of use
  • Customer support
  • Coin availability

Before committing to exchange, read reviews from other users to get a sense of their experience and quality of service. It’s also important to note that exchanges are quite different; some will be better suited for your needs than others.

Trading Numerous Pairs

There is one thumb rule in crypto trading: Avoid trading too many pairs. Trading multiple pairs will increase your risk and make it more difficult to manage your trades effectively.

It’s advisable to focus on a few key pairs and become familiar with their price movements. By doing this, you will make better-informed decisions and be able to execute your trades more efficiently.

Working Without a Trading Plan

Like with any investment, you need to have a solid plan before jumping into the market. This plan should include your investment goals and how you plan on achieving them. Without a plan, it will be easy to make emotional decisions that lead to costly mistakes.

Creating a trading plan doesn’t have to be complicated. Start by answering some basic questions like:

  • What are your investment goals?
  • How much money are you willing to invest?
  • How much risk are you comfortable with?
  • What time frame are you looking at?

Answering these questions will give you a good starting point for creating your trading plan. Remember, your plan can and should evolve as you gain more experience in the market.

You should also outline the type of investment you want to make in the cryptocurrency market. Whether you want to trade in crypto coins or invest in a Bitcoin ATM, you need to have a clear idea of what you’re looking for.

If you want to invest in Bitcoin ATM, check out Byte Federal. They have some of the best Bitcoin ATMs in the country.

Revenge Trade

Losses are inevitable when selling and buying cryptocurrencies. When you lose money, you’re more likely to make an emotional decision, resulting in a revenge trade. A revenge trade happens when you lose money on a trade and then immediately enter into another trade to make up for the loss.

This is almost always a losing proposition, as it’s very difficult to time the market perfectly. Instead of trying to get revenge, take a step back and analyze what went wrong. Make sure you have a clear plan and strategy before entering any trade.

If you find yourself in a situation where you’re tempted to revenge trade, take a deep breath and walk away.

Investing Based on Dump and Pump Calls

Cryptocurrency trading can be a very lucrative way to make money. However, it can also be very risky, especially if you rely on so-called “dump and pump” calls to make a decision.

Dump and pump callers are people who try to get others to buy or sell a particular cryptocurrency by giving false or misleading information. They will often claim to have “inside information” about an upcoming price movement.

Please don’t fall for it! If you make investment decisions based on these calls, you are almost guaranteed to lose money.

When you’re new to the market, don’t just take someone’s word for it. Do your own research and understand what you’re buying before you invest. If something sounds too good to be true, it probably is.

Dump and pump callers are often trying to get you to make a decision quickly. Don’t let them rush you, be patient and rely on your market analysis.

Adopting Herd Mentality

Herd mentality is a term used to describe the phenomenon of people following the actions of others, even if those actions are ill-advised or irrational. It’s a common occurrence in cryptocurrency trading and can lead to some costly mistakes.

Instead of following the crowd, do your own research and make informed decisions. This may mean taking a contrarian position at times, but it’s often worth it in the long run.

Utilizing Margin Trading Too Soon

Margin trading is borrowing funds from a broker to trade cryptocurrency. It can be a great tool for experienced traders but can lead to big losses if used incorrectly. Many new traders see margin trading as a way to increase their profits, but they don’t understand the risks.

But if used too soon, margin trading can be extremely risky and even experienced traders. If you’re new to cryptocurrency trading, it’s best to avoid margin trading altogether.

Even if you have a good understanding of the risks involved, it’s still important to be careful. Make sure you understand all the terms and conditions before entering into any margin trade. And never trade with more money than you can afford to lose.

If you decide to use margin trading, be sure to limit your trade size to a small percentage of your overall cryptocurrency portfolio. This will help minimize your losses if the market turns for the worse.

Finally, always remember to practice risk management when margin trading. This means setting stop-loss orders and taking profits when your trade reaches a certain price target. By doing this, you can protect yourself from major losses if the market moves against you.

Are You Ready to Start Cryptocurrency Trading?

Cryptocurrency trading can be a great way to make money, but it’s also very risky. If you’re thinking about getting started, do your research and understand the risks involved.

And take note of the above mistakes and avoid them at all costs. If you can do that, you’ll be well on your way to success in the cryptocurrency market.

We hope you enjoyed this post. Check out our other posts on our website for more investment advice.

Please note, this article is informational and should not be taken as financial advice.

James Laight

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