Cryptocurrency is an attractive market for beginner traders. As Bitcoin “yoyos” through the financial markets, crypto investing seems like a sure-fire way to riches. Stories of countless “Bitcoin millionaires” is another siren towards the path of buying and selling crypto coins.
Tread the path towards crypto trading with caution, however. Sure, plenty of people have made significant profits by investing in the right altcoins. Plenty more made the wrong choices, however (no one wants to read about them). Successful trading comes with years of experience practicing strategies and navigating the markets. Lucky for you, though, we have you covered with this guide on 7 Things to Avoid When Trading Crypto.
What is Cryptocurrency?
Before we can launch into how to avoid mistakes in trading crypto, we first need to cover the basics. Cryptocurrency or Crypto is a digital currency that can be used to spend online through virtual transactions. More than just electronic cash, however, cryptocurrency represents a movement away from the traditional banking sector. One of the unique selling points of crypto is that it can allow for highly secure and largely anonymous transactions without going through a third-party such as a central bank. Not only does this have huge implications for privacy advocates, but it opens a world of financial freedom for the 1.7 billion adults without access to a bank account. In sum, cryptocurrency is:
- Digital currency spread across a decentralized network of users (“peer-to-peer”);
- Often built on blockchain technology, where transactions are verified in “blocks” of data along a “chain” of users;
- Secured with cryptography, an encryption technique that means each new token is created by solving complex mathematical problems;
- Verified using a proof-of-work “POW” or proof-of-stake “POS” algorithm.
Of course, the reason you’re here is for the other popular use of cryptocurrency: trading. Buying and selling cryptocurrencies, or trading on the subtle price difference between digital tokens in the financial markets, is a multibillion-dollar industry. The original cryptocurrency remains the biggest today: Bitcoin. All other crypto tokens are known as “altcoins,” with some of the most popular cryptocurrencies including Ethereum, Litecoin, and Dogecoin. The price of a single Bitcoin at the time of writing is $46,000.70. Don’t panic, however. You can invest in Bitcoin for as little as $5.
Now that you are all caught up on the basics let’s launch right into what not to do when trading crypto:
7 Common Crypto Investing Mistakes
- Putting all your money into one coin
Perhaps you think Ripple will be the Next Big Thing. Or your gut instinct is “Bitcoin, move over, WorldCoin is coming through.” There will be cryptocurrencies that soar their way through the market capitalization list on CoinMarketCap. You may be right and stake your trading investments on a winning token. Nonetheless, a common mistake people (especially beginner traders) make is investing everything in one cryptocurrency. As with other financial assets, you should spread your investments around different altcoins. Diversify your portfolio, in other words. This is especially important in the highly volatile crypto market. Should one coin plummet and tank, it won’t take all your money down with it. As of December 2021, there are over 15,000 listed cryptocurrencies, so plenty to choose from!
- Following the crowd
Yet, when choosing which cryptocurrencies to invest in, be wary of simply picking the most popular ones. There is an element of herd mentality in all forms of trading. Following the crowd when crypto trading can mean that you join the party late. The coin’s popularity will dictate its price and, therefore the size of the affordable investment (and potential profit). Like Newton’s apple, cryptocurrency is not immune to its own form of gravity. What went up must come down, and if you invest too late, then you will only see your money tumble soon after. There is an expression in trading: “Buy on the rumor, sell on the news.” This means that you could try crypto investing in the next big thing and not the token everyone’s already talking about.
That said, don’t sell too low because of market anxieties. Remember that there will be much “advice” online encouraging you to buy/sell a certain cryptocurrency coming from people who may benefit from your investment. Avoid “FOMO” (Fear Of Missing Out) and do your research when possible.
- Buying because it is cheap
Cryptocurrencies are not grocery items or travel plans. The “cheaper the better” may apply to your flights home for Christmas, but there is no such thing as a bargain in the crypto world. Investing simply because a token is cheap should be avoided. After all, buying in bulk does not get reflected in your profit down the line! Sure, you may stumble on a winner and buy low into an altcoin that has a promising future, but this is not guaranteed.
Always dig deep and find out why a certain cryptocurrency may be falling the markets or suddenly have a suspiciously low price. There could be issues with the underlying tech, or a prominent figure may have made a statement about them (look what Elon Musk’s tweets did to Bitcoin.)
- Crypto investing without a plan
Lack of strategy is perhaps the number one reason most beginner traders fail. Harness your impatience and use that energy to make a killer trading strategy. Think about what you want (short-term profits or a long-term investment) and what you bring to the trading table (the time and money you have available). Will you use technical analysis (reading price charts and plotting indicators – don’t worry, there is software that helps you do this!), and have you considered automated trading?
You will find inspiration online, but try and create a custom strategy that works for you.
- Lack of security (scams, fraud, etc.)
Unfortunately, the world of cryptocurrency is mired in scandal. In effect, it is an unregulated industry which means more trading liberties but also less protection. Take the findings of Action Fraud last year. This fraud-alert service reported that crypto trading scams surged by 57% in 2021. This meant that cryptocurrency investors lost a total of 113 million pounds – over 150 million US dollars.
There are millions to be made through cryptocurrencies, and therefore the trading waters are rife with sharks. Be wary of scam sites, loaded trading advice, and insecure trading bots.
- Forgetting your password
Have you heard of Stefan Thomas? If you have, it is probably not for the reason he would have liked! Had Mr. Thomas kept note of his Bitcoin password, he would be sitting on a fortune of $250 million. Instead, he lost every single dollar of that digital asset. The crypto password is called a “private key.” In Bitcoin, a private key is a 256-bit number. Learn from the biggest mistakes of the would-be millionaires and guard that password safely. Don’t share it but do store it. Keep your crypto assets safe, ideally offline, in a “hard” wallet. Remember, that long number is the key to your crypto riches.
- Not knowing the basics of market analysis.
Education and information are the fundamental pillars to trading success. The cryptocurrency industry is especially prone to rumors and misinformation, so do your research and learn to separate the wheat from the chaff. The facts and advice you use to inform your trades should come from different sources. Financial experts, Reddit forums, newsletters, and news channels – all yield their own value. They may claim success rates and encourage you to invest in a particular crypto, but ultimately it is your dollar on the line. Use technical analysis tools like charting software and educate yourself on crypto investing strategies.
Choose The Best Broker
Climactically, these tips are null and void unless you have a trading platform. There is an overwhelming number of brokers to choose from, so do your research carefully. To ensure you are not held back trading, you will want a broker that offers leveraged trading across various financial assets. Trading platforms vary in terms of the fees and commission they charge and the suite of tools on offer.
We can recommend our site TradeOr as a stellar choice. We charge zero commission, and there are no hidden fees when using our platform. Our customer support team is available 24 hours a day to answer your queries. Our site is constantly updating with the latest market information and trading news, so you never miss a beat. For those clients looking to increase their positions, we offer leveraged trading at margins up to 500:1. Best of all, TradeOr clients can access two of the best charting tools in the market: TradingView and ChartIQ.
Crypto trading is a little like the “Wild West” of finance. You could strike gold, but there are dangerous scams out there, and you should do your research before staking it all on a single coin that promises to be the “next big thing.” Follow these tips on what to avoid and stick to your trading strategy when crypto trading.
- What Are The Common Mistakes Of Crypto Investors?
Many beginner crypto traders make the mistake of buying a coin that has already peaked and will only fall in value. Investing when the coin is already at an all time high will be expensive and potentially badly timed. Other common crypto investing mistakes include trading without a clear strategy, buying cheap tokens that are doomed to fail, and falling into online scams.
- How To Avoid Mistakes In Trading Crypto?
While no single coin guarantees success when investing in cryptocurrency, there are ways to avoid the common pitfalls. Have a trading plan and stick to it like glue. Don’t invest more you can afford to lose. Be wary of the advice you heed, always fact-check your sources and come to an informed decision from multiple perspectives. Research the coin thoroughly before you make any major investment.
- What Are The Risks Of Investing In Crypto?
The biggest risk of any significant investment is that you will fail to make it back – worse yet, that you may owe more money than you invested in the first place. The trading that can yield the greatest profits often comes at the biggest risks, so be sure to inform your decisions with technical analysis and reliable research. Find a trading platform that offers customer support and trading tools such as charting software. At TradeOr, for example, all our clients have a team on hand 24/7, and we offer TradingView and ChartIQ tools for technical trading.