There are plenty of ways that savvy and ambitious traders can make money trading crypto. However, if you’re a beginner, you should take some time to focus on how traders lose money. A big part of success is avoiding failure, so make sure that you remember to watch out for these common crypto trading mistakes.
Jumping In Head First
If you think you’ve found a good investment opportunity, it’s easy to jump in entirely too quickly. Instead of putting your hard-earned cash on the line, why not try demo trading first? Many exchanges offer demo accounts so that you can try out the platform before putting real money in.
You’ll be able to acquaint yourself with how to buy and sell, how to set stop losses, and other trading basics. You’ll also be able to see how your trading picks would have worked out if you put down actual money. In most cases, new traders will find that their strategies were a bit lacking and can take this opportunity to improve them.
Getting Stuck With High Exchange Fees
When you trade Bitcoin or other cryptocurrencies through an exchange, there are going to be transaction fees. The exchanges need to keep the lights on, and even decentralized exchanges skim a bit off the top. However, you don’t want to spend more than you have to. If you’re paying too much, it can seriously impact your profitability over the course of multiple trades.
Different exchanges have different fees and can also have varying fees for specific cryptocurrencies. Coinbase, the largest cryptocurrency exchange, has fees that range from 0% to 0.60%. Another competitor, Crypto.com, ranges from 0.04% to 0.40%, which shows that you really need to find the fee for the specific cryptocurrencies you’re trading to be sure you’re getting the best deal.
Fear of missing out (FOMO) is a notorious acronym within both cryptocurrency and other trading circles. It leads investors to buy high and sell low instead of the other way around. There are many examples of cryptocurrencies that have doubled overnight and crashed immediately afterward. FOMO drives buyers to scoop up these cryptocurrencies after spikes in performance, which means they’re buying high.
Unfortunately, these impulsive investors aren’t able to time the market correctly. Even seasoned investors usually can’t. When the price begins to drop, they panic-sell and take a loss. Instead of making long-term investments, they make a high number of erratic, small investments that slowly but steadily lose money.
Not Knowing When to Sell
Some cryptocurrency traders have the opposite problem. They make a great investment pick, it goes up, but they simply sit and wait for it to continue growing. They refuse to sell, even when they see their profits evaporating as prices drop. Eventually, they’re left with the same amount or even less than they started with.
This philosophy has come to be associated with the term “HODL” within cryptocurrency communities. The frantic, all-caps misspelling of the word “hold” highlights the poorly thought-out strategy of simply never selling no matter how well your investment does.
Focusing on Price Alone
The uninitiated investors can look at cryptocurrencies or other investments and imagine that it’s nothing but numbers going up and down. However, there’s a lot more behind what’s happening than price. The market is driven by people buying and selling, and they have many reasons behind those decisions.
Most of the top cryptocurrencies today are parts of major projects that drive innovation. They serve as the foundation for applications and ecosystems. The use and potential of any given cryptocurrency are major factors in its long-term success. You should learn more about what you’re actually investing in.
Falling for Cryptocurrency Scams
The fastest way to lose your money trading cryptocurrency is to become the victim of a crypto scam like the Immediate Edge Bot which was recently exposed on a cryptocurrency portal named ScamCryptoRobots.com. There are countless different types out there, always ready to prey on unsuspecting traders. Many of them pose as brokers, offering you a chance to invest in crypto and make huge gains with automated trading. New traders should stick with established exchanges to avoid scam brokers.
Phishing is another major source of crypto trading losses. If your investments are held on an exchange, then scammers could use your password or recovery details to access your account. If you hold your cryptocurrencies in your own wallet, then there are plenty of phishing attacks designed to get access by imitating other crypto websites. Not being cautious could see you lose all of your crypto investments.