Understanding how crypto and crypto trading work can be somehow technical to newbie crypto investors. This is why it is important to do your own research so that as a new crypto investor, you can avoid unwanted crypto mistakes & losses while trading crypto.In this article you will find out the 10 major crypto trading mistakes new investors do make, and how you can avoid them.
1. Not Following DYOR
The word “DYOR” is a popular term in the crypto space, and it means DO YOUR OWN RESEARCH. This advice is very underrated in the crypto space but costs a lot of new investors, a lot of money in their crypto trading journey. As an investor, conducting thorough research is vital in your crypto trading plan.
Before investing, take the time to understand the fundamentals of the project, analyze market trends, and evaluate potential risks. By conducting proper research, you can make informed decisions, develop a good crypto trading strategy, reduce the likelihood of losses, and maximize your profit.
2. Lack of Diversification
Diversification is key in crypto trading. Instead of investing all your trading capital in a single trade, it is very wise to spread your investments across different cryptocurrencies. By doing this, you are protecting your portfolio from significant losses if one investment underperforms.
You should allocate a portion of your capital to more stable assets, such as Bitcoin or Ethereum, while also exploring opportunities in other promising altcoins. This balanced approach can help maximize potential gains while minimizing risks.
3) Not Using a Stop-Loss While Trading
New crypto traders often make a common mistake by trading without using a stop-loss order or setting a very tight stop-loss. In the volatile cryptocurrency market, this lack of risk management can lead to significant losses.
A stop-loss order is crucial as it automatically triggers a sale when the price reaches a predetermined level, protecting your investment. However, setting a stop-loss too close to the current price, known as a tight stop-loss, can result in premature triggering due to normal market fluctuations.
To avoid this, you need to set a reasonable distance for your stop-loss order. Put into consideration the cryptocurrency’s typical price movements and volatility. By doing this, you are giving room for flexibility and preventing unnecessary exits triggered by short-term price changes. You should know that utilizing stop-loss orders effectively safeguards your capital and helps limit potential losses.
Always factor in the specific characteristics of the cryptocurrency when setting your stop-loss levels.
4) Using Leverage As a New Crypto Trader
This has been advised as a bad idea countless times. Using leverage as a new crypto trader is inadvisable because it is not only risky but you can also lose your collateral if your trade goes bad. New traders often fall into the trap of starting in crypto trading with leverage without fully understanding the implications.
This is a wrong crypto trading strategy. It is advisable to use paper money so that you can avoid losses in your crypto trading. Leverage trading is only for experts who are highly skilled at trading crypto because they can come out with minimal to no loss.
5) Not Observing Market Conditions
Crypto markets experience different market types, including bullish, bearish, and sideways trends. It is important to develop specific strategies tailored to each market condition. This will help you optimize your trading results and avoid unnecessary risks. Also, by understanding the complexities of each market condition, you can capitalize on the opportunities presented during bullish trends, protect your investments during bearish trends, and identify potential consolidation areas during sideways trends.
6) Following The Hype
Most crypto investors fall into this trap. We have seen this over and over again in various pump-and-dump crypto projects. You should know that thoroughly doing your research on the crypto project’s fundamentals, including its technological innovation, team, and potential market demand is a must before you invest in that crypto. Evaluating its long-term viability and growth prospects will guide you toward more informed investment decisions.
7) Not Keeping A Trading Journal
Documenting your trades, including the specific cryptocurrency, entry and exit points, reasoning behind the trade, and outcomes, provides valuable insights for future decision-making. This is an excellent crypto trading strategy
Reviewing your past trades allows you to identify patterns, analyze your trading strategies, and learn from both successes and failures.
By consistently updating and analyzing your trading journal, you can refine your crypto trading strategies, optimize your trading approach, and achieve greater consistency and profitability.
8) No Knowledge of Technical & Fundamental Analysis
Here is a quick explanation of both terms:
Technical analysis involves studying price charts, identifying patterns, and utilizing various indicators to assess market trends, support, and resistance levels. On the other hand, fundamental analysis focuses on evaluating the intrinsic value of a cryptocurrency by considering factors such as the project’s team, partnerships, adoption rate, and potential market impact.
Mastering both analysis approaches enhances your ability to identify profitable opportunities, time your trades effectively, and manage risk appropriately. You will be able to make informed trading decisions and avoid potential losses in your crypto trading.
9) Inability To Identify Scams
In the financial market, especially in the crypto market scams and fraudulent schemes are very rampant. This is why it is important to take caution by researching the credibility and legitimacy of crypto projects and exchanges before investing your crypto in them. By conducting due diligence, and exercising caution, you can protect your investments from potential scams and fraudulent activities. You should know that, if an investment opportunity seems too good to be true, it probably is. Trust your research, seek advice from trusted sources, and prioritize the security of your investments.
10) Not Maintaining Security Practices
Maintaining security practices is paramount in crypto trading. Implement strong, unique passwords, enable two-factor authentication (2FA), and store your cryptocurrencies in secure wallets. Prioritizing security measures will protect your investments from potential hacks and theft. Furthermore, it is important to recognize that the responsibility for maintaining security lies with you as the trader.
Safeguarding your seed phrase and protecting your password are essential aspects of ensuring the safety of your assets. By being diligent in these practices, you can significantly reduce the risk of potential hacks, theft, and unauthorized access to your funds, providing you with peace of mind and confidence in your crypto trading journey.
Avoiding these common mistakes as a new crypto investor is very essential and can save you a lot of financial stress in the future. One of the safest ways to get started as a crypto trader is to choose a trusted crypto trading platform.
An excellent crypto trading platform like DIFX will hold your hand in your trading journey as a beginner and provide useful tips on how to avoid losses in your crypto trading journey.