With the growing number of cryptocurrencies and other blockchain-related products, it is no surprise that trading in cryptocurrency has become a popular option. As an investor/trader, you can choose which type of coin you want to invest in: the ones with the potential to grow as technology evolves or those that act like dividend-paying instruments.
However, the priority of any excellent trader is consistency – being able to generate positive returns on crypto investments month after month. This requires research, managing your risk daily, having effective exit strategies, and knowledge of mistakes to avoid as a crypto beginner.
Not Doing Your Due Diligence
The first mistake most beginners make is investing in coins without knowing what exactly they’re investing in.
Some people think it’s a good idea to copy the trades of high profile investors, but even if their trade is profitable, for every one successful trade, there will be at least ten others which results in a loss.
So you should always do your research and invest in coins based on a study and information-backed speculation of long-term potential.
Investing without Understanding the Value of Money
One crucial mistake to avoid as crypto beginners make is not realizing how much they’re putting at risk when investing. If someone invests half their portfolio in one coin and leaves it like that for days or weeks, they might realize that after a significant price correction, that coin has lost more than half its value.
So, someone who invested $5000 could now be left with just $1000. And if they’re not careful enough, the next day, the price may fall further down, thus reducing their portfolio to under $500. That’s why you should never invest excess money that you cannot afford to lose.
It will also help you follow all your investment rules since avoiding mistakes is easier when gambling with play money.
Don’t Worry about Missing Out
Many investors saw the price of bitcoin rise rapidly, and they wanted to buy into this cryptocurrency before it became too expensive.
This fear of missing out made people invest in more than they could afford, which led them to take on debt, get margin calls or sell their bitcoins at a loss when prices fell.
Investing without Knowing Your Risk Tolerance
Now that you know mistakes to avoid as a beginner, understand mistakes specific for each type of trader.
Firstly, if you’re doing this purely for dividends, holding only BTC is fine (since most dividend-paying coins are strongly correlated with each other). If you want more diversification, you should hold strong altcoins known to pay high dividends.
Secondly, if you love to day trade, you should diversify across several coins with different risk profiles – in addition to holding Bitcoin and Ethereum.
This makes it much harder for you to lose all your money when prices drop since some will fall in value while others rise – thus limiting the damage.
Not Doing Fundamental Analysis
Fundamental analysis of the cryptocurrency market is the foundation of all investment strategies, yet most beginners fail to do it. If you don’t know how to analyze a coin, you’ll end up buying at its peak and selling at rock-bottom prices.
You avoid mistakes like these by doing your research every day, checking cryptocurrency news sites, and talking with fellow traders. The research will help you see where the market is going and what trades might be profitable in the future – both short-term and long-term.
Remember, mistakes are inevitable, but it will be pretty tough for investors to get ahead if they keep making them without learning from them. But mistakes also teach us how to avoid them in the future – so make sure that every time you make a mistake, there is something new that you learn from it.