Friday 19 July 2024

3 Mistakes To Avoid When New To Trading Cryptocurrency

No matter what all the top trading sites and analysts say, when it comes to trading cryptocurrency, it is more an art than it is a science. Cryptocurrency trades take place in a highly volatile environment, where costs and pricing can fluctuate without a moment’s notice and is dominated by manipulative investors and new traders with little experience. In a market that has recently seen a lot of disruption, it’s true that trading in cryptocurrency is wildly unpredictable, meaning it’s no surprise that so many traders end up losing money during their trading journey. 

Many new traders aren’t hugely experienced when it comes to making crypto trades. A lot of new traders are there simply because they believe it is the right thing to do, or are looking to make a quick ROI on their capital. As a result, many make basic mistakes or fall into dangerous traps when making their trading and investment decisions, usually led by confusion, misinformation and impulsive trading. However, avoiding errors and mistakes is actually much easier than many traders assume. 

Whilst cryptocurrency mistakes are common and are relatively easy to spot once you know the signs, escaping them can be notoriously difficult for new traders, especially when the stakes are high. But because the stakes are so high, this is why all crypto traders should take a step back to reassess their decisions. With that in mind, let’s take a look at some of the most common mistakes crypto traders can make.


Having FOMO

It’s very easy to become manipulated and trend-driven in the world of crypto trading. Far too many new traders get information on cryptocurrency from internet sources, notably social media, which are usually anonymous. Social media creates the potential for trading and investment fads, meaning that traders will, on mass, put their investments behind particular cryptocurrencies solely because they see others doing the same. 

Last year, a survey was published that looked into how cryptocurrency traders invest and it was found that 24% of traders primarily receive information regarding cryptocurrency trends from social media. 26% of investors get their information from crypto-exchanges, whilst 25% of trades were done based on information from general trading platforms. 

Traders can all too easily fall into the trap of following the latest trading trends discussed on Twitter and Discord. Needless to say, investing in a cryptocurrency that has gone viral usually always means that it has reached its high and you should expect to see some losses. In 2021, around $770million was reported in losses from cryptocurrency related social media scams. 


Making Too Many Trades

Some new cryptocurrency traders have a tendency to swing from one trade to another, acting on impulse and almost certainly always down to something they have seen or read about on social media. What this means is that, ultimately, they are holding one cryptocurrency which they then sell for another in the hope of making an increase, then they sell the second for a third, and so the cycle goes. 

There is never a guarantee that this approach will result in profit. One thing that it does guarantee, however, is that they end up paying more exchange  fees for each transaction they make. This, combined with the possibility that they may sell one token at a loss and easily exit at another, means that it’s easy to imagine the volume of costs and losses that are compounded into failure. The trick for avoiding this is to set out from the very start with a clear idea of which are the strongest cryptocurrencies that you want to trade in. Don’t keep jumping from one trade to the next.


Not Managing Risks

If you do carry out your own research into which cryptocurrencies to trade in, it’s important to remember that not everyone offering trading tips has your best interest at heart. Before you even make your first trade, set limits on how much you can afford to invest in a particular digital currency and don’t be tempted to trade with money that you can’t afford to lose. Cryptocurrency is a high-risk investment scheme and one where more traders lose money than make it. 

You can also mitigate risk from scams by being wary of anyone offering to make trades on your behalf, or promising high rewards. There are tools you can buy to carry out crypto wallet checks which check the risk level of wallets you may wish to send investments to.

Cryptocurrency is a highly volatile trading platform and although it can bring big rewards for limited traders, it can result in more losses than it can wins. Trade smart and never send your money to someone if it doesn’t feel right.