Getting rich has never been easier. With the rise of Cryptocurrency, we’ve seen overnight billionaires. The good news is that anyone can do it! Crypto trading isn’t exactly a walk in the park, but if you play your cards right, you stand to make some serious money.
However, there are mistakes you might want to avoid. Mistakes in the crypto space aren’t exclusive to newbies, even the most seasoned investors find themselves in hard places as a result of a few poor decisions. Below are 5 of the most common mistakes you might want to avoid:
- Putting all your eggs in one basket
The riskiest thing you can do with crypto is to put all of your money into one project. If the value of the token plummets, you could lose your entire portfolio and consequently all your investment. Sure, the value may recover over time, but how long are we talking about here? Weeks? Months? Years? It may also possibly never recover. With crypto, you never know what to anticipate.
It’s not uncommon to hear about people contemplating suicide after losing all their investments in digital assets. To avoid this, it’s wise to spread your investment across different tokens. Diversify your portfolio so that a setback on one project does not have a significant impact on your overall investment. Spreading $1000 among five tokens is a far safer gamble than putting it all on one coin.
If you’re just getting started, invest in lower-cap cryptocurrencies. They are often less risky and a safer bet. You should not buy a coin just because it is cheaper. A coin with a unit value of $50 may be worth zero in a few weeks, but $50 worth of Bitcoin may still be valued at around $50 after the same period of time.
While spreading your risk is important, you should be careful not to invest in too many projects. Over-diversifying your portfolio is just as risky as not diversifying at all. Because ‘too many’ is a subjective term, you might not even realize you’re making this mistake. Managing your portfolio becomes a real nightmare, and decision-making becomes even more difficult.
There are lots of good projects, but you don’t need to invest in all of them. Since you’re only holding a small investment in each project, an increase in the price of the token won’t really translate into bigger profits.
- Not doing your own research
When trading crypto, it’s very important that you do your own research rather than relying on the advice you find online. Take everything you read or watch with a pinch of salt. The market is ruthless to all traders regardless of experience, and no one knows everything.
Learn the fundamentals of technical analysis and how to apply them to make your own well-informed conclusions. It may take some time to pick up on this, but once you do, you’ll be fine. Do not invest in ventures simply because others are doing so.
If you must consult with someone, do so only after conducting your own research. Compare your findings to what others have to say, and seek advice if necessary. Don’t trust random people on Youtube and TikTok. You should take their opinions into consideration, but make your ultimate decision based on your own research.
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- Buying high and selling low
The objective of crypto trading is to make money. If you’re buying high and selling low, not only is your plan flawed, but you’re also losing money. When you invest in overhyped projects that have had some success, the value of the tokens usually drops soon after, when the early customers start selling their tokens.
This is because people buying a token raises its price, but when they start selling it, the price drops. Don’t buy high just because you think the price will continue rising. When you buy high and the price starts to dip, you find yourself in dilemma to either sit back and wait for the price to recover, or sell at a loss. This is precisely why you need a solid strategy before making trades.
- Investing more than you can afford to lose
In crypto trading, the golden rule is only to trade what you can afford to lose. Crypto is a highly volatile asset with no guarantees. Everything can crumble in a matter of minutes, if not seconds. When the market crashes, even the safest assets can lose up to 90% of their value.
Trading with borrowed money, or money meant to pay debts, puts you under a lot of stress, which is detrimental to your mental health. Similarly, just because you have a lot of money to invest doesn’t imply you should invest it all. You could lose it all in the blink of an eye; the crypto space is that brutal.
This could also drive you to trade emotionally, which can be catastrophic. Making judgments based on emotions is a huge f**k up that can lead to disastrous consequences. Don’t fall for rug pulls that claim to make you wealthy in a matter of days. Most ventures that promise unrealistic returns are scams perpetrated by entrepreneurs looking to make a quick buck off naïve investors.
Even projects with potential for high returns such as Verasity or Solana can take a long time to reach those targets!
- Trading without a strategy
Take crypto seriously and plan ahead, just as you would when starting a business. Remember, you haven’t made a profit in crypto until you cash out. Regardless of the trade, your strategy should dictate when you cash out.
If you wait too long to cash out your profit, the token may begin to dip. On the other hand, if you cash out too soon, the token may have even more success in the future. Most people miss out on the opportunity to exit trades at the proper time since greed is a major issue. This is why you need a strategy for deciding exactly when to exit a trade.
There is no such thing as a flawless trading strategy, but having one is still preferable to not having one. When making your strategy, take into consideration factors such as your risk tolerance and financial objectives.
It’s always a good idea to school yourself in how to trade properly, before you start risking your money. There are some great courses out there, so take the time to level up your trading skills.
There are some great crypto courses on NAS Academy, take a look and find the right one for you.
We also like the Mindful Trader who specialises in forex and stocks, but the same principles apply to crypto too.
These are five of the most typical trading mistakes made by investors. It’s very hard to completely avoid them, but you can always do your best.
Don’t panic if you make a mistake. Everyone makes mistakes. Even the most experienced traders are vulnerable to the whims of the market. The most notable difference between an amateur and a seasoned trader is how they address mistakes. Seasoned traders are more likely to have sound risk management tactics and to fix their problems more quickly and effectively than rookie traders.