It is common for every new investor to feel overwhelmed by the sheer volume of information and the seemingly endless number of crypto choices out there. In order to get started on the right foot, it is essential for new investors to do their research first, and then start trading in cryptocurrency.
There are a few things to consider when trading in digital currencies to avoid common trading pitfalls. But most investors are not aware of these mistakes which leads them to make bad trading decisions. In this article, you will get insights into some of the common pitfalls of crypto trading, so that every investor can avoid them.
Common pitfalls of crypto trading
1. Not doing enough market research
The major crypto trading pitfall is that most beginner investors don’t do enough market research and jump directly into investing in cryptocurrency. This results in making bad decisions, and most of them aren’t aware of how to deal with the volatile crypto market where anything can happen out of the blue. Furthermore, due to this, so many investors miss their opportunity to earn more profits by investing in the wrong crypto coins.
If you want to become a successful investor, then you need to do your research first. Start by reading up on the different coins available in the market, look at their history, what they do and how they work. This will help you understand why they are popular and whether they have any potential value or not.
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2. Use safe and secure methods when trading
Cryptocurrencies are prone to cyber attacks, and there are several crypto exchanges which have been attacked by hackers. This makes it difficult for investors to keep their investments safe knowing that they can be hacked anytime. To avoid this traders must use safe and secure methods when trading cryptocurrencies.
You must ensure that the crypto exchange doesn’t have any previous records of cyber attacks, and if they have the latest security measures to protect their servers and database from hackers.
3. The FOMO Effect
FOMO stands for fear of missing out. Many new traders often tend to follow the crowd as they fear missing out on the profits. Falling victim to FOMO is another common pitfall of crypto trading many new investors make. This is due to a lack of experience and knowledge to make an informed decision. This is why it’s essential to take some time to research before jumping in too far with your investments.
A lot of people get into crypto because they want to be part of a big movement, but they lack the skills to really understand what they are getting themselves into. You can’t just jump in and start buying crypto because its value might skyrocket in the future. Digital currencies are so volatile that you never know if you will make profits or if it will turn out to be another bad investment.
4. Falling for misleading information
Many crypto investors rely on social media to make decisions related to buying and selling cryptocurrency. This allows the big whales in the crypto market to manipulate the price of a coin. They buy up large amounts of the crypto coin at lower prices hoping the crowd will follow them. As soon as the price rises, they dump their holdings into the market to make money from their investments.
This is done by spreading misleading information and trying to make people fall for pump-and-dumps which often leads to panic selling. Traders with years of experience and knowledge save themselves from falling into this trap, but it’s the newbie investors who are tempted to make quick profits that often lead to bad judgement.
5. Trying to time the market
The cryptocurrency market is not like other traditional markets. Several beginner investors often fail to time their trades. People need to understand there are no set rules or formulas that can help predict its movements or direct them toward certain outcomes automatically.
To make your trades profitable, you have to keep a close eye on the trends in the crypto market and do enough research, so you don’t invest in the wrong crypto coins. Monitor the crypto graphs and charts, and follow their movement patterns. Furthermore, each exchange has its unique way of operating and pricing coins based on supply and demand.
6. Don’t spend all your funds on buying too many coins
It is tempting to make more profits quickly from crypto trading. This can be a risky move especially when you are dealing with volatile assets. New investors often spend most of their funds on buying too many coins in a single trade which is a huge trading pitfall. Even if you think you know what you are doing, it’s not a good idea to invest all your money in one trade.
Furthermore, when you are buying too many coins then you have to make sure you have enough time to market research and analyse the price movements. If your investments hit the market before your research is complete, you can end up making bad trading decisions. You will need some money set aside for emergencies and anything else that comes up during your trading journey.
Cryptocurrency trading has become increasingly popular over the last few years, and a lot of investors out there already have jumped in to make money. It’s a huge market, with different cryptocurrencies and exchanges to choose from.
The problem is that there are so many options, that it can be difficult to know where to start. Moreover, beginners need to be aware of the pitfalls, so they can avoid them before they lose all their money. These were some of the common pitfalls that every investor must be aware of before starting with crypto trading.