The 10 most common mistakes beginners make in the crypto market and how can they be avoided?
The first mistake: lack of patience
This is one of the hardest mistakes to avoid. The cryptocurrency market is highly volatile, and it is very difficult to predict the direction the market will take, so you should not give in to your impulses and desire to trade, as trading is not a game. If you are not an experienced trader, it will be difficult for you to be patient, however, those who are patient will be rewarded in the long run.
Impatience makes you make rash decisions, it may break your strategy, but worst of all, it can make you feel afraid of missing out.
The second mistake: not realizing the risks
Since the volatility of cryptocurrencies is much higher than it is in the stock market, the potential gains and losses are also greater. So you must have good risk management. So when investing in this market, you should always keep in mind that you can lose all your money.
The cryptocurrency market is not yet a regulated market, and the values are purely speculative. Most reckless investors resort to several thousand dollars in bank loans to get more cryptocurrency and expand their portfolio, so the risk here is very high, especially if these investors are inexperienced.
What we recommend here is to avoid getting into debt and maintain your normal pace of life. And cryptocurrencies should not become a kind of risky bet on your financial capabilities.
The third mistake: selling the lowest level and buying the highest price
Since the crypto market is very volatile which we alluded to at the beginning of the article, large price fluctuations are common. If you get scared of the slightest drop, you will lose money. And if you decide to sell in panic and fear or what is abbreviated as “FUD” (an acronym in English that refers to fear, uncertainty and doubt), despite its simplicity, it is a common mistake. In this case, the mistake would be entering the market without doing the necessary research.
Then, faced with a sudden drop or bad news about the cryptocurrency to invest in, you hastily sell your positions in an attempt to cut losses.
The problem with this approach is that once you sell, you actually make your losses a reality. And although reducing capital losses makes sense in some cases (such as triggering a stop loss), here the decision would be unreasonable. It is known in the crypto market that it is a bullish market in the long term, so acting and selling on the first drop is a wrong move. And here the same thing can be said when the same people see a rise, buy back at higher prices, and repeat the cycle.
As for those who buy at the price peaks, they feel fear of missing out on the opportunity or what is termed as “FOMO” feelings. Once they are bought and a short period of time passes, the price begins to fall and fall, reaching the lowest price. Here, the feelings turn to anxiety and fear, which leads them to sell at the bottom, which means the realized loss.
Fourth mistake: not securing open positions
Stop loss is very popular in the cryptocurrency trading market and other financial markets in general. However, unfortunately, many traders and investors overlook it and do not realize its importance until it is too late.
Stop loss is very important for capital preservation. It translates this possibility offered by many trading platforms as “protection”, and automatically applies orders to sell. Whereas, you set a limit at which you would like to place a sell order if the currency price declines.
Often placed at a support level or at certain retracements, placing a stop loss in particular will allow:
Prevent bad posture from worsening.
Fifth mistake: stop learning and being aware of the developments in the cryptocurrency market
Everything that directly or indirectly touches blockchain and cryptocurrency is evolving at an amazing speed. Between an ICO and changing regulations, or important team announcements in such a modern and active market. Therefore, it is necessary to be up to date, and it is necessary to improve your basic knowledge about the blockchain and cryptocurrencies in general (see our guide on cryptocurrencies) and to know which project to invest in.
Fundamental analysis and increasing knowledge are just as important as technical analysis. Where it helps to rely on proven facts in trading operations well, not just relying on numbers and predictions.
What we would like to say is that it is also necessary to deepen your education in technical analysis in order to have a deeper look. The bottom line is that knowledge is power.
You can always follow the developments of the next cryptocurrency market
Digital currency analytics
Mistake 7: Emotional Intervention with Cryptocurrency
Some traders and investors fall in love with their digital currencies, and the matter here is not a joke, but rather a very serious one. Where the trader relates to his digital currency and despite achieving a certain profit, and it is time to reap the fruits of the profits, these emotional people cling to the currency and do not give it up easily and see it as an integral part of their portfolio.
But this situation is dangerous. The reason is simple: it lacks objectivity.
In fact, getting out of a trade and selling at a loss will be much more difficult. Sometimes you will have to put your feelings aside in order to keep a portfolio in the green.
Mistake 8: Blindly trusting analytics and looking for recommendations
You should always do your own research or DYOR, it just means you have to check out the investment and entry advice for yourself, which can be found on any social network. So you should always ask yourself how much do you know about the project. And it is really better if your choice of investment is mainly your initiative. Therefore, we recommend that you avoid blindly following the speculations published here and there.
Newcomers often rely on the advice of others with more experience, and that’s okay. But investing is a personal and important decision.
Below is a list of some of the avenues to consider before entering into any social media trading:
Refer to different forums, Telegram groups, Public Discord, Medium…etc, in order to get a general idea of how other traders view the currency.
Read the project white paper.
Does this project meet a need? Is having a cryptocurrency necessary?
How is this project distinguished from others? What is his strength compared to his competitors?
What trading platforms offer to trade this currency?
Is the team still active on social media? Are they following the pre-established roadmap? Is the professional history of project members conclusive and tangible enough?
Keep in mind that knowledge is power, as mentioned above. So invest your time in your own research first before you invest your money in it. In the long run, you will be more experienced and successful.
Mistake 9: Not diversifying investments into different digital currencies
Whether you are an investor or a day trader, you cannot put all of your money into one asset. Even the most active and risky cryptocurrency can suffer a significant drop.
It is crucial to invest in several different cryptocurrencies to reduce the risk. It is also necessary to explore other avenues and new markets to avoid some troubles in the crypto market and also go into the stock market, real estate, gold, etc.
Diversification and risk management are the keys to a strong portfolio. Therefore, finding good entry points in several cryptocurrencies will increase your chances of making a profit.
The tenth mistake: negative psychological impact
Emotion is an unwanted friend in trading. It is easy for greed, fear, hope, or excitement to drift away from you or draw nearer to you. There are many situations that will give you different feelings and it is up to you to decide how you will deal with them.
When you make a bad trade, the negativity surrounding that outcome can spill over into the next trade. There may be times when you do not take a position in a new trade for fear of losing again.
On the contrary, when you make a series of winning trades, you will feel invincible and may enter the market at a disadvantage. So managing emotions is the main key that can make the difference between a good trader and a bad trader.
Another example is that boredom can easily affect your judgment and cause you to start a new position when you otherwise wouldn’t. So before buying or selling your assets, it is always helpful to ask yourself the reasons for the actions you are about to take.
We conclude these mistakes with advice that you must always strive to reach, which is to be the best trader by increasing the profits of your portfolio and making them overwhelm the losses.