It may seem very easy to become a cryptocurrency trader — the barriers to entering the market are very low, just having a couple of dollars and a smartphone or a tablet. But if you want to become a professional, you have to put in much effort. The supposed ease of entry often leads to severe mistakes and rapid capital loss. First, explore the best cryptocurrency platforms at https://chainbroker.io/platforms/.
Today we’ll talk about the most common mistakes made by both beginners and experienced users and tell you how to avoid them.
1. Lack of crypto-trading strategy
A lot of people start trading with the hope of pure luck. However, this approach is fundamentally wrong. Of course, from time to time some small income will appear, but you will not reach systematic earnings. Before you start crypto trading, you need to develop a clear plan, which includes a lot of points:
- The optimal platform for trading. There are quite a lot of crypto exchanges today. You need to choose one platform for earning, which will suit you on a number of conditions: term of existence, available cryptocurrencies and trading pairs, conditions for depositing and withdrawing funds, and trading options offered. Because online resources are not immune to sudden outages or hacking, it is ideal to use two or three exchanges. However, it is very difficult to work on several services in parallel, so it’s better to focus on one reliable platform first.
- Money Management. It is necessary to prepare a certain amount of money, which will be your foundation for trading. Next, you need to decide what part of the amount to deposit, in which crypto-assets to invest, and in what cases to withdraw funds.
- What to do in different situations. You must clearly understand how to behave when the cryptocurrency you need is on the rise or on the decline, so as not to make rash transactions that will drive you into deficit or bring you insufficient profit. You also need to decide in advance when it is worth fixing profit/loss. This will allow you to minimize losses when the market does not develop the way you predicted, as well as save the earned income.
Having your own strategy is a serious step to success in crypto trading. However, it is not enough to have a plan of action. It also needs to be clearly executed. Only by trading according to a strategy, you can be successful.
2. Lack of systematic training and analysis
This mistake is often made by experienced users. Many people, having successfully traded on the exchange for six months or a year, begin thinking that they fully understand the market and already have a complete knowledge list. However, this is not true. The cryptocurrency industry is highly volatile. It constantly has unforeseen situations:
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- upsurges of a certain digital asset due to a favorable news background;
- drops in the exchange rate due to the outflow of miners or a failed transaction on the cooperation of the platform with the investor;
- artificial increases in the rate (pumps) or its undervaluation (dumps).
So, in order to succeed, you have to constantly analyze the market and learn new things. Believe us, as soon as you start thinking that you know everything about cryptocurrencies, the market will make an unforeseen turn-up or down, which will lead to financial losses. This is why you can’t do without constant education in this business.
3. Mismanagement of capital
Above we have already mentioned that proper allocation of funds is one of the key components of a trading strategy. But not everyone develops this strategy correctly. As a rule, beginners make two types of mistakes when it comes to the distribution of their capital:
- Allocation of all capital to the deposit. Perhaps, one of the main problems of newbies is a desire to get everything at once. That is why they enter all available funds on the platform for their further investment. Due to the lack of experience, the first steps in the crypto-trading lead to losses. Even if your starting capital is too small, you should not risk more than half of it. In the first weeks (or even months) the trader’s main objective is to gain experience, not huge profits.
- Investing all of your money in one cryptocurrency. This is no less common mistake of beginners. By investing in one, you are literally going all-in, leaving yourself no escape route. It’s a good thing if the coin rises and you lock in a profit. But if it collapses, you will lose all of your investment and will not be able to trade again.
It is highly recommended to invest in several cryptocurrencies. In this case, the loss from one crypto will offset the profit from the other assets.
4. Trading on emotions
In critical situations, even experienced traders do not always keep their composure and conduct transactions on not the most favorable terms. Simply put, users succumb to panic. That’s why the most common crypto-trading mistake is acting under emotions. To avoid making panic deals, you need to keep a cool head and try to analyze the situation.
Speaking of emotional mistakes, of course, we can’t avoid greed. Traders of any level go broke waiting till the last moment in order to buy at the minimum and sell at the maximum. Very often such eagerness ends up not catching the moment of reversal in time, and the output is minimal or even negative profit.
5. Focusing on chats and expert statements
Newbies need to accept one not entirely pleasant fact — in the cryptocurrency world, there are practically no well-wishers ready to help you in the process of enrichment. Trusting chat rooms and expert statements is one of the most common mistakes in crypto trading. Platforms are swarming with more experienced, cunning users who want to enrich themselves at someone else’s expense. Therefore, you should always rely only on yourself.