When trading in the cryptocurrency market, it’s easier to fail than it is to succeed. The market is far more volatile than similar financial markets, like stocks. Where stocks ebb and flow slightly over the course of a day, cryptocurrencies can vary wildly in their value over short periods of time.
For some, that’s a reason to stay away. Others see the volatility as an opportunity, and are able to utilize the spikes to make significant profits.
But most people who try to get into trading end up quitting due to their losses. But a lot of the mistakes that lead to these losses can be avoided with a little preparation ahead of time. In the spirit of helping new traders avoid these common pitfalls, the worst of them are compiled throughout this article.
Overtrading
It can be tempting for newer day traders to assume that the best way to generate profit is by putting in as many trades as they can. But trading more often doesn’t mean you’ll make more money.
The best way to avoid prolonged losses is to limit the number of trades you perform in a week. Usually, a day trader won’t need to push through more than a few trades weekly to get adequate returns. If you keep trading multiple times a day, you’ll quickly see underperformance in your portfolio, which only compounds during market downturns.
While it’s important to be conservative in the number of trades you perform, you shouldn’t let this become a hard limit or a goal. Doing either can change your decision making, and not for the better. The market is fluid, and to take advantage of it your thought processes can only be so rigid. Shoot for a middle ground, trading according to a general set of guidelines without becoming afraid to take risks when you need to.
Falling for Pump and Dump Groups
These groups attract new members with the classic promise of getting rich quick. They’ll claim that they function by all their members working in a coordinated fashion to manipulate the market performance of a coin, with the goal being for all members of the group to make a profit based on their foreknowledge of the trends they create. Groups claiming to do this are becoming more and more common.
Of course, that’s not how it really works. The people running the group will usually be ‘whales’, traders with large amounts of capital who will buy up coins in bulk. These whales will buy up the coins they want to pump, and only after they’ve gotten most of the way through their pump scheme will they inform the rest of the group. At this point, the whales can sell to the people now looking to buy, and they’ll make huge profits at the expense of the actual Pump and Dump group.
Unlike some of the other things touched on in this list, there are no caveats here, there is no way a trader in one of these groups is going to come out ahead in the end. Avoid these groups.
Going in Unprepared
There are two main preparations those looking to get into cryptocurrency trading should make before they jump into the market.
Paper Trading
The biggest mistake a new trader can make is going into the market without any experience. Before you start investing your capital into your coins of choice, it’s a good idea to practice by trading on paper. There are various online services and platforms to facilitate paper trading, including sites like Tradingview. By using these services before putting real money on the table, an aspiring trader can develop vitally important practical experience without putting any hard earned money on the line. Once you feel comfortable enough to enter the market for real, you’ll lose less of your investments than other new traders.
Quitting the Day Job
Now you don’t need to be rich before you start trading, but if you’re going to be putting a lot of your time into trading and expecting to get the big returns you hear about from the success stories, you can’t start with nothing.
Anyone looking to support themselves with trading alone is probably going to need to put in a hefty amount upfront into cryptocurrencies. The number would have to be in the upper five digit range, or something around $65,000.
This isn’t meant to discourage new traders from entering the field, and I’m certainly not encouraging the Average Joe to dump everything they have into cryptocurrency in hopes of making it big. Doing that isn’t smart investing, in fact it isn’t any better than going out and spending it all on lottery tickets. By all means, start trading. But start with reasonable expectations, and until you’re sure the profits you generate from trading are enough for you to live off of, you should probably keep the day job.
Following Bad Advice
Well, it may seem odd coming from another random writer, but you shouldn’t just trust whoever you hear on the internet. A lot of the so called ‘investors’ you’ll find on Twitter and other social media platforms can turn out to be corporate accounts trying to sway traders to take actions that are beneficial to them. Even most of the actual investors are only providing advice that will cause their own profits to increase.
There are definitely legitimately helpful people out there, investors with experience in the field willing to help out newer traders, but you should always be very careful about who you’re going to trust.
Concluding Thoughts
Trading in cryptocurrency can provide novice investors with incredible opportunities to make money. But these opportunities aren’t without dangers. Now that you know the most common ways new traders make mistakes in the field, you’ll be able to avoid these in the future and thrive in the crypto markets!
This article is not financial advice. The content above is strictly the opinion of the author. Do thorough research before investing in any asset.
