Crypto trading for newbies: top 5 mistakes to avoid
One of the biggest draws of a decentralized platform for trading assets is that it opens up the opportunity to invest to more folks. There are barriers to being involved in the traditional finance markets that don’t exist with cryptocurrency trading, and that means younger investors are getting involved.
In fact, all you need to start is either to get a digital wallet or to sign up for a cryptocurrency trading platform that lists your currency of choice. Once you have these in place, you’re ready to buy and sell bitcoin or other cryptocurrencies.
With so many different currencies, all competing for investors’ attention, and hundreds of different exchanges for trading them, it can be a bit overwhelming to a new investor. The pitfalls of investing in cryptocurrency aren’t very different from the risks that investors have always faced.
One key factor that makes the risks a little larger is that the cryptocurrency trading markets are largely unregulated. This means they’re at risk from unscrupulous people who are looking to leverage the excitement about these new markets to take advantage of new investors.
By keeping the following mistakes in mind, it should help you avoid both making some common mistakes, and steering clear of any scams.
#1 – Don’t base your decisions on emotions
Like any form of investment, your best chance for success will be based in a measured and well-researched approach. Making an investment because you’re excited about the product, or because there’s hype surrounding a certain currency is a recipe for losses. You should take the time to thoroughly research the company, development team, and history of any cryptocurrency you invest in.
This includes learning about what makes the currency different from others on the market. Maybe it has added layers of security, or supports smart contracts. Maybe it’s got faster transaction times and higher transparency. Never take a company’s word for it, make sure you seek out expert opinions and third-party resources to check their claims.
Getting caught up in the excitement of a certain coin or company is a big risk when it comes to investment strategies. Try to take emotion out of it.
#2 – Investing is not gambling
It’s easy to think that this is a game of chance, but in reality being a successful investor is a skill. Luck doesn’t really factor into it, and learning about traditional investment strategies will help you in your crypto investments as well.
Take the ‘bitcoin bubble’ for example. Many people were riding high when it peaked last year, and are now holding on to their assets in the hopes it will hit that peak again. While it may do that, there are also chances that a new currency will come in to take its place, so maybe it would be better to cut your losses and seek out a new opportunity.
Make sure you diversify your holding as well. While it might seem bold to ‘go all in’ on a certain currency, you’re really just setting yourself up for potentially losing everything. There are so many promising new coins out there, why not spread your portfolio among several of them?
#3 – Fear is not a good motivator
This ties back somewhat to the first two items, but deserves its own category because it’s important to be said. Fear is a terrible investment strategy. Whether it’s fear of missing out on the next big thing, or fear that your investment will not pay off, it can really derail your progress and cost you money.
You have to eliminate fear from your process by arming yourself with the best information possible and make your decisions based on what you find while researching. If you rush into an investment because you fear you’re missing out on something, you’re setting yourself up for potential losses. Know what you’re getting yourself into before clicking the buy button.
#4 – Ignore 99% of the ‘advice’ you get
Lots of people are going to want to tell you what to do. From pitching their own product to trying to pump up the value of their own investment, many people doling out advice don’t have your best interests at heart. Don’t take anyone’s word for anything, do the research yourself.
If someone is telling you an investment opportunity, startup, or ICO is ‘too good to be true,’ it absolutely is. Read as much as you can about the investment you’re interested in, and you’ll quickly be able to spot this garbage advice. Stick to experts that don’t have a particular stake in the product being discussed.
#5 – Have a strategy
Your plan has to be more than simply ‘to make money investing in cryptocurrency.’ Below are some questions you should answer before getting into crypto trading.
- Is your primary goal short or long-term gains?
- How much are you prepared to risk, and what losses are you prepared to weather?
- What profit level will trigger you to sell?
If at all possible, automate some of these tasks with automatic buy/sell orders. Set thresholds and stick to them.
By properly planning, you are not just flying by the seat of your pants. A successful investment strategy can not only maximize gains, it can protect you against losses. Research some successful investment models for the type of investing you’re going for, and build your plan based on what you’ve learned.
A piece of mind will maximize your chances of success
If you avoid some of these common pitfalls, you stand a much better chance of having success in crypto investment. Arming yourself with information, creating a strategy, and removing emotion will help make you a successful bitcoin trader.
Picking the right digital wallet, the best cryptocurrency trading platform, and other supporting technology is just as important as researching which coins to invest in. While success is never guaranteed in any investment scenario, keeping these mistakes in mind will help you maximize your chances of success.