750Did you know that 58% of Americans own stock? If you’ve already tried your hand at the stock market, you might be tempted to move into the cryptocurrency market. But with so much volatility, you don’t want to make any rookie mistakes that will leave you empty-handed.
Read on to learn about the 10 common errors for crypto traders and how to avoid them!
1. Minimal Diversification
Whether you’re trading with crypto or traditional stocks, diversification is key. Avoid setting yourself up for problems with a narrow selection of cryptocurrency. Even though Bitcoin might have the biggest brand name, don’t neglect other digital assets.
To diversify your portfolio effectively, you’ll need to commit to some education. In other words, don’t randomly add other assets without understanding what kind of return on investment you can expect. Consider your risk tolerance and the timeframe over which you want to see crypto trading profits.
As one option, you could put half of your investment in Bitcoin. Divvy up the remaining half to cover a mix of Ethereum and other currencies on the rise. That way, if Bitcoin tumbles, you’ll have other assets to make up ground.
2. Failing to Test Out Strategies
You might think you have the ideal strategy to get the best return on investment. But if you enter real trading blindly, there’s a good chance you might kill your budget quickly. As a new trader or even an experienced one, plan on testing out your strategy first without using real money.
Take advantage of a crypto trading platform that lets you try paper trading. With paper trading, you can purchase stocks or sell them to see what happens. The process simulates real-world trading — but without the inherent risk.
Some platforms also offer tutorials and demos so you can learn more about the overall process. You can try building a portfolio and learn how to tame your emotions when you experience a loss. You’ll be able to make the common errors for crypto traders without feeling financial pain.
3. Making Lots of Trades
It’s tempting to think you need to become a crypto day trader who constantly moves around money. The truth is that you don’t need to be making multiple trades per day.
When you make too many trades, you run the risk of losing more money. You may compromise your decision-making if you feel rushed into hitting a daily mark for trades. And when the market isn’t doing well, you’ll only dig a deeper hole by making consecutive poor trades in a tight window of time.
4. Selecting the Wrong Transaction Size
As you enter into a trade, you’ll need to choose the right position size. You don’t want to make too large of an investment. But you also don’t want to make such a small investment that it has little impact on your overall portfolio.
To determine the right size, consider how frequently you trade. Since you don’t want to trade obsessively as a newbie, you might want to limit yourself to one time per day. You could even say your frequency of accessing an exchange is 4 times per week.
Then you can map out an investment plan based on your activity. If you’re only accessing a platform a few times during the week, aim for a higher investment that could have a positive impact on your portfolio.
If you’re trading more frequently during the week, keep the transaction size lower. And visit this website for a secure and easy way to get the money you need for transactions.
5. Checking Too Many Indicators
As a newbie to crypto trading, try not to be overwhelmed by the sheer volume of information in front of you. Indicators can include the Relative Strength Indicator (RSI). It can help you check the momentum of cryptocurrency assets.
If you’re hoping to anticipate future prices or determine if the market is bullish or bearish, the RSI can be a helpful tool. Along with other indicators, including MACD, the RSI can be wrong, however.
Be cautious when you use indicators to tell you how to trade. Educate yourself on how they work first. And watch for false signals that send you down the wrong investment path.
6. Going Against the Grain
Yes, it can be exhilarating to pursue unexpected options for cryptocurrencies. For instance, buying Bitcoin when it’s on a downward slide could seem like a wise strategy because maybe it will start to turn around. But looking at historic data will show that a quick turnaround tends not to happen.
Bitcoin could be in a slump for an entire year. Betting that it will make a quick rebound might fail, and you’ll be out lots of money in the process. While you don’t need to subscribe to the herd mentality and follow the crowd, you do need to be aware of general trends.
7. Not Tracking Your Trading Results
Whether you use a Word document or paper journal, it’s smart to track your trading results. Not doing this means you won’t have data to inform future trades. And there’s a better chance you’ll make repeat mistakes.
Especially when you’re new to the game of crypto trading, you can start to notice trends. You’ll also be able to determine which trades consistently result in losses.
Over time, you can start to shape and refine a trading strategy. Keep track of the particular currencies, when you purchase them, and how they’ve evolved. Then you can determine how to allocate your portfolio and figure out an entry and exit plan.
You also can develop a risk-reward plan. This is a formula that helps you see how much money you’ll get from a particular investment. With a ratio of 1:3, for instance, you’ll be able to see which investments were too risky and remove them from your queue.
8. Choosing Fake Coins
Did you know that 26% of non-retired American adults don’t have any retirement savings? If you’re hoping to boost your financial situation quickly, it’s easy to fall prey to schemes when you’re trading crypto.
For example, fake coins have been known to lure trading newbies with promises of big early returns. Be wary of any coins that claim to offer anything too grand. Instead, take the time to do some research first.
A legitimate cryptocurrency will have a whitepaper created by its developers. In it, you’ll be able to learn about the currency’s technology, including its intended goals and why it was created in the first place. You’ll also be able to find data and diagrams that help to validate its legitimacy.
If you don’t see a whitepaper, it’s better to dismiss the coin. Otherwise, you might drain your account to support a fake coin. And then only its creator will get the money.
9. Signing Up for Automated Purchases
It’s appealing to automate your purchases from your wallet when you’re managing a portfolio. You won’t have to remember to make a purchase and you can keep building your portfolio slowly.
The problem with automated purchases is that it’s easy to forget about them. Bitcoin might be surging, so you could automate purchases to amass more of it. But if starts trending downward, you could forget about the automated purchases and be investing in a losing game.
As a new investor, steer clear of automated purchases. Wait until you’re a more confident and experienced trader. Your better bet would be to monitor the progress of purchases over months before committing to any automation.
10. Overlooking the Importance of Cybersecurity
Do you want to start sending funds or revealing critical financial information online? Then make sure you know about cybersecurity issues first. Failing to educate yourself ratchets up the risk of security problems that will put your money at risk.
Security gaps exist on even well-known platforms. Start by making sure that encryption is part of any processes used to back up data. Otherwise, your information could fall into the wrong hands.
Use platforms that opt for 2-factor authentication to verify your identity. And use platforms that stash money in cold wallets, which provide a more secure space to store currencies than on the platform itself. You can feel better knowing that the likelihood of a hacker gaining access to funds is lower.
Avoid Common Errors for Crypto Traders
When you’re aware of the typical errors for crypto traders, it’s easier to avoid the pain of significant financial loss. Test out your strategies and avoid making too many trades each day. Finally, make sure you use a crypto trading platform that prioritizes security.
For more crypto trading strategy ideas, check back soon for new articles!