Five Major Mistakes Amateur Trades Must Avoid
Cryptocurrencies, particularly Bitcoin, have been around for about 12 years. Many crypto millionaires have become wealthy by investing and trading cryptocurrencies. For example; At the age of 21, Eric Finman claims to be the youngest Bitcoin millionaire in the world after he initially invested $1,000 in Bitcoin in 2012. However, fruitful trading of cryptocurrencies takes more than just having capital to succeed in the cryptocurrency scene. one must take two essential factors under consideration. First, the discipline that comes with constructing and following a crypto trading strategy, and second, the visions and precision that come with the analysis of market trends and price movements. Beginners shouldn't jump on the crypto trading movement without a robust understanding of how this market works. Cryptocurrency trading is a high-risk endeavor, meaning that the odds of losing your assets are high. Gainful cryptocurrency traders flourish by first measuring their investment strength and risk tolerance. In this article, we explore the major trading mistakes one must avoid if they’re a beginner in cryptocurrency trading bandwagon.
1. Trading without a plan
Many beginners think of cryptocurrency trading as gambling. But still, some other traders steadily make profits from trading. How do they do it? Well, they have a plan, and they stick to it. making a plan helps you avoid many mistakes while trading digital assets. You need to know what your targets are before starting a trade. This helps you maintain discipline and remain focused when exploiting on the volatile cryptocurrency market. Trading blindly could result in significant losses, and it is difficult to determine when and where you went wrong. However, having a trading plan does not guarantee success, but it certainly helps you.
2. Leverage
Using leverage is a common mistake that has erased the capital of many newbies. Leverage is essentially borrowing assets from your trading platform. You can choose to borrow 10 times your initial capital or even 100 times of it and use the additional funds to trade. But, leveraged trading cuts both ways: it may increase your gains, or widen the degree of losses suffered. Leveraged trading is a feature that is better left for experienced traders.
3. Investing more than you can afford to lose
There is one main element in investing: that is to never risk money you absolutely cannot afford to lose. While investing is important to protect our stash against inflation and to eventually even grow them, profitable trades are not certain and it is not good at all to trade more than you can afford to lose. Before diving into cryptocurrency trading, it is essential to create an emergency fund. Subjective to your conditions, an emergency fund should cover at least 6 - 24 months of expenses. This would guarantee that you are financially safe against volatility and in case of a bad result while trading cryptocurrencies.
4. Buying a cryptocurrency because it's cheap!
frankly, the value of a coin doesn’t mean anything. The value relies on the total market cap and the circulating supply of the asset. Just because a cryptocurrency is at $0.50 doesn't mean it is inexpensive or undervalued. Similarly, just because a coin is at $50,000, it doesn’t mean it is expensive. People invest in a cryptocurrency for numerous reasons other than its normal price. One of the most common ones is studying the assets to determine if it is undervalued or overvalued. Doing enough research will help you understand whether the price of a certain coin will rise or drop in the future. Many people invest in cryptocurrency because they believe in the technology that is supporting it. A highly advance Technology, a small market cap, and a huge growth potential make it a lot easier to make profit while trading.
5. Buy High, Sell Low
One of the mistakes made by beginners is buying high and finally selling low. This is the opposite of what you should be doing as a cryptocurrency trader. To make profits while trading you need to buy low and sell when the price reaches its peak. It is typical for beginners to look at graphs and if they see a substantial price jump, then they’d think it's the suitable time to buy. Beginners tend to be subjected to what is known as the “Fear of Missing Out” and end up making the wrong moves that end in considerable losses. One way of avoiding buying high and selling low is to learn technical and fundamental analysis. Technical analysis helps you to find the entry and exit points, while fundamental analysis explains the reason behind changes in cryptocurrency prices. Another way to avoid the Fear of Missing Out is to spread your trading portfolio, to defend you from significant losses.
Crypto trading carries with it an extensive degree of risk due to the infamous price swings. If you are a beginner in the cryptocurrency market, you should learn the fundamentals before trading. Detailed research and practice help you comprehend cryptocurrency trading.