You can generate a large amount of money when performing trading operations with cryptocurrencies, however, you must avoid making these 10 common mistakes, if you want this activity to be profitable.
The profits obtained by cryptocurrencies have attracted a new segment of investors, contributing more capital and making the market grow to more than 0.5 trillion dollars (500,000,000,000) this year. However, not everyone is making money and unfortunately, most of the new cryptocurrency traders are making mistakes, which can easily be avoided.
If you are investing in long-term currencies, the safest strategy is to maintain them, but daily trading, or even occasional trading can be profitable in the short term, allowing you to increase your funds more quickly. Whether you are a beginner in cryptocurrency trading, or you are just trying to try your luck in this fascinating new market, here we show you the 10 frequent mistakes you should avoid doing.
1. Believe in pseudo experts without doing your own research
Many people join Telegram groups and follow the traders via Twitter, looking for directions, and there is nothing wrong with that, as long as you do your own research. You will find hundreds of traders and pseudo experts promoting currencies and market movements for personal benefit in all social media, and you will find lots of people who say that a particular currency will ‘soon reach the moon’ or give 10x.
If you only listen to these people, and do not conduct a proper investigation, it is very likely that you will lose your money. Most of these promoters are false accounts, promoters paid or people belonging to groups ” pump and dump ” (a type of fraud that is to spread a rumor in order to artificially inflate the price), who create false boasts of certain currencies , in order to generate “FOMO” (panic to miss a great investment opportunity), making more people buy what they are selling.
Doing your own research is the most important step before entering a market. You need to understand what a coin does, how the price moves, what stage of development it is in, etc. Running blindly in exchanges just because you see an artificial increase in the price of a currency is a formula for disaster.
2. Not understanding the information provided by the graphics
Most inexperienced traders believe that graphs or technical analysis are extremely complicated or simply overvalued. While both points of view can be discussed, there is no denying the fact that market movements and currency prices have patterns, which can be identified and used, so that at least, you increase the chances of making a successful trading
As in the rest of the things in life, there are no guarantees in the cryptocurrency market. Since this market is largely speculative and driven by emotions, graphs and technical analysis, they fail from time to time.
Having said this, if you’re serious about trading, you must understand the basics, such as candlestick charts ( candlesticks ), areas of support and resistance and trend lines.
To begin with, you must understand that resistance zones are price ranges that a currency has repeated without being able to break through, while support zones are areas where the price often bounces. Identifying these zones can help you assess where the current price is, and if you have room to go higher or lower more.
Trend lines are also quite simple, where an uptrend is indicated by the price that makes ‘ higher lows ‘, green line in the screenshot below) and a bearish trend is reflected by ‘minimums’ lower ‘(‘ lower lows ‘).
The following screenshot is a basic representation of these concepts, where the horizontal lines indicate areas where the price finds a ceiling or a floor, and generally, in an upward trend, the past resistance zones can become supports later (observe how the previous candles could not break the penultimate horizontal line, but then bounce from it) and in the bearish tendencies, the support zones can become resistance.
3. Sell by panic at a low price, buy again at high price
The cryptocurrency market is extremely volatile , which means that the price swings are normal, and if you get scared easily, you will lose money. Selling by panic is a common mistake made by beginners, who first enter a market without much research, and then when faced with a sudden fall, sell to “reduce their losses.”
The problem with this approach is that once you sell, you have actually lost money ( You Do not Lose Money in Stocks Unless You Sell ), and while in some cases, reducing your losses makes sense, most currencies are they will recover in days, or even hours, and then the same people, seeing a sudden increase, will buy again, but at higher prices, only to repeat the cycle. Buy high and sell low is the direct route to bankruptcy.
4. Not having an exit plan
You found a good entry (that is, you bought cryptocurrencies at a low price), and the price has gone up, now what? Do you claim your winnings and sell all your cryptocurrencies? Do you keep them? Most beginners have no exit plan (sell their crypto-active) and simply plan it as they go, and in most cases, they end up losing their profits, or actually going into losses and have to keep the coins until they can reach the point of equilibrium.
If you are buying cryptoactive to keep them long term, you are not really trading. When trading regularly, you must have an exit plan , where you reserve your winnings and can move forward.
It may happen that the price rises more after taking profits, but as a trader, you should expect this. However, a very effective strategy is to sell in stages instead of selling all your coins at once. In this way, you will renounce a percentage of the immediate profits to have the opportunity to take advantage of the increase in prices.
5. Search for the next Bitcoin, Ethereum or Litecoin
Just last year, Bitcoin went from $ 1,000 to about $ 20,000, which is obviously an impressive profit. Ethereum and Litecoin have also recorded similar massive returns, but not all currencies can, or will, follow the same path.
Some currencies, either due to their large supply, or a number of other factors, are relegated to certain price ranges (for example, Ripple). Investing in currencies, with the hope of profits of 2,000% or 4,000% is not a viable plan.
As a trader, you must understand the details of each currency you market , and that includes your price history and reasonable future projections, so you can plan your operations accordingly.
6. Sticking emotionally to a coin
No currency will be on the rise forever, even Bitcoin has very good days, followed by really tough days . The cryptocurrency space is constantly changing and evolving, with new opportunities emerging every day. If you believe in a currency, maintaining it for long-term returns is a good approach, but if you’re looking to make money with trading, you can not have emotional ties to any currency.
When Bitcoin is falling from $ 20,000 to $ 12,000, it is not very smart to keep it. Similarly, if a currency is emerging before an important announcement, you can easily double or even triple your investment with it, instead of keeping Bitcoins at $ 20,000, expecting a profit of $ 500.
7. Spend all the money at once
Another common mistake that beginners make is to spend all the money from their operations at one time . If you find a good entry, you should buy with a percentage of your funds (50% – 60%) and keep the rest to see if your ticket works. This way, even if a coin falls after your purchase, you can buy additional amounts during the fall (averaging downwards). Similarly, if the upward trend continues, you can always buy more, and although this approach reduces your profit margins, it ensures your position and prevents your operation from failing.
8. Put all the eggs in one basket
Even the most publicized currencies can suffer significant drops, while the market as a whole remains stable. Cryptocurrencies are unpredictable and are in a state of evolution, which means that there is not a single currency (not even Bitcoin) that is “guaranteed” to survive in the future.
Whether you keep cryptocurrencies or are trading, you can not afford to put all your funds in one currency . Diversification and risk management is the key to a solid portfolio, and finding good entries in various currencies will increase your chances of making a profit.
9. Thinking that cheap is always better
The fact that a currency is cheap does not mean that it is a better purchase or that it has greater possibilities of obtaining profits. While it is true that it is easier for a $ 0.05 coin to reach $ 0.10 (compared to a $ 500 coin that reaches $ 1000), it is also easier for a $ 0.05 coin to drop to $ 0.01 , ruining you completely.
The key here is not only to take the price as an indicator of profitability , and direct your research to understand why a particular currency is cheap, and what future event, if any, could boost its price.
10. Not being aware of the news
The movements in prices, market analysis and graphics is not enough. If you want to be a successful trader, you must follow the news related to cryptocurrencies and stay updated on all recent and future developments. As cryptocurrencies are a speculative market, they respond very strongly to positive and negative news, and being informed is indispensable for a trader.
- 1 1. Believe in pseudo experts without doing your own research
- 2 2. Not understanding the information provided by the graphics
- 3 3. Sell by panic at a low price, buy again at high price
- 4 4. Not having an exit plan
- 5 5. Search for the next Bitcoin, Ethereum or Litecoin
- 6 6. Sticking emotionally to a coin
- 7 7. Spend all the money at once
- 8 8. Put all the eggs in one basket
- 9 9. Thinking that cheap is always better
- 10 10. Not being aware of the news