Since a major rise in price in December 2017, Bitcoin has attracted a lot of attention from the media, making it more widely known to the public. More and more people have been trying to scrape a few bucks by entering the crypto trading world. That is understandable, everyone wants a slice of the big cake, but trying your hand at trading when you are not familiar with it can be a bit of a rocky experience at first. Here is a list of 5 common mistakes you might make when trading for the first time and how to avoid making them. This is general advice and cannot be taken as an investment guide, we are simple appealing to common sense and helping you avoid common mistakes.
Not knowing the market
You probably already know it but the crypto market is very volatile, which means there does not need to be great volumes for the price to swing widely. Cryptocurrency prices are also closely linked to recent news such as a country banning a specific cryptocurrency or the announcement of a massive hack on a famous exchange. The news are a very important source of information when trading and you should always be aware of the latest events in the crypto world before you take any decisions.
Panic and emotions are your worst enemies when you are a beginner trader. It is tempting to get excited when you see prices rise or to want to get rid of your cryptocurrencies as soon as the prices start to flinch. But you should always keep a cold head when trading. Otherwise you are guaranteed to make a mistake and to lose money in the process. Every decision you take when trading should be guided by sound analysis, not fear or greed.
Fear of missing out
Along the same lines, you should be wary of the common fear of missing out. You see prices go up in the charts and you think to yourself that you need to be in that rocket ship when it reaches the moon. The truth is, you should have been on that rocket ship before it even took off. Joining the ride by fear of missing out is a sure way to lose money as prices never rise indefinitely. When you buy out of FOMO, all you see is the potential gain, but when you trade you should be prepared to lose as much as you earn. Think about it for a second: what if you were buying when prices were at their highest and that they were only going to go down from now on? Well, that would be unfortunate.
No controlling the amount of money you invest
As we have already stated, the cryptocurrency market is very volatile and it can be easy to get caught in a frenzy when you see the charts going to the moon. The same goes when you have lost money and you want to make it up. The urge to always invest more money can be strong but the rule of thumb when trading is: never invest more than you are willing to lose. You should only invest money that is not vital to you or that would put you in a difficult situation if you lost it. Trading is not just about winning, you must be prepared to lose and you should always be prepared for both scenarios.
Spreading your focus
It might be tempting to think to yourself “If I invest a little bit on a lot of different cryptocurrencies and only one goes to the moon I’ll be rich”. This type of trading is close to playing the lottery and has its limits. Sure, you could indeed get lucky and see one of your investments go to the moon, in that case, enjoy! But betting randomly on different cryptocurrencies exposes you to the risk of not knowing the technology behind each and understanding the projects they support, some projects being doomed to oblivion, as well as their cryptocurrency along with your money. Always remember to plan for the for worst when trading, you multiple investments could make you win big or lose big. It would probably be better to focus on a few cryptocurrency of which you know the technology and believe in the project.
Did you find this article useful? Have you already made one of these mistakes? Do you feel more confident to start trading now? Let us know in the comments!