New to cryptocurrency trading? These are mistakes to avoid!

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There is a lot of money to be made in the soaring cryptocurrency market, with different means such as airdrops, faucets, and task-based rewards. Other than these, crypto mining is the most common form of earning: buying cryptocurrency tokens at a lower price and selling them when they go higher to gain profit.

Due to the buzz in the market about ‘following the money’, it is easy to get caught up in trends and lose money in fraudulent or flopped projects, with no means of recovery. These common mistakes are not relegated to beginners, as anyone can fall victim to the market’s volatile nature, unpredictability, and unexpected bear seasons.

This article discusses these mistakes, and how to avoid them seeking to invest money in cryptocurrency projects.

Lack of Research

Conduct proper investigations before making investments. Learn the basics of cryptocurrency trading. There are tons of cryptocurrencies in the market, pick those that fit your investment goals and risk tolerance. Choose a reputable and secure trading platform to sell and buy cryptocurrencies. During trading, the cryptocurrency tokens need to be stored somewhere, so it is important to choose a suitable wallet. There are cold and hot wallets that serve specific purposes. Cold wallets are a better option for large sums.

Overlooking Security Measures

Security is paramount when investing in a business. Likewise, it is necessary to consider them in cryptocurrency. Avoid projects with promises of extremely high profits, with no credible backing. Genuine projects usually have a transparent team, website, active community, and white paper. All of these, and other necessary information helps investors make informed decisions.

Choose secure trading platforms before setting up accounts and connecting your wallets. Your wallets should also be secured with complex passwords and multi-factor authentication. A large amount of funds should be stored in cold hardware wallets, inaccessible unless connected to the internet. Do not use public WiFi when accessing your wallets, and turn off Bluetooth when not in use. These are easy hacking entries.

Using Emotions for Investment Decisions

Keeping your emotions in check when making financial decisions is a necessary step for success. Do not make impromptu choices based solely on the present situation in the market. Although this factor ought to be put into consideration, you should consider other underlying factors.

For instance, a common error backed by emotions is buying cheap cryptocurrency tokens with the hope that they’d become the next BitCoin - based on the marketing hype about it. While it is easy to be swayed by the very low prices of the token’s individual units and the influx of buyers, look at its sustainability. The market capitalization, its unit price, price history, and token supply.

Another error is focusing on hunting for tokens promised to do 100x in their market span. This is an unlikely scenario considering the market’s volatility. A better option would be to invest in tokens with a stable price history and possible long-term existence. These may be pricey but are bound to offer you more value.

Buying High and Selling Low

The aim of making an investment is to gain profit. Most people tend to follow the trends and buy large amounts of tokens when its price is skyrocketing. This is done with the mindset that these tokens will continue to experience a hike in price. When this token (bought at a high price) tanks in value, most investors panic sell and lose both their expected profit and initial capital. After this happens the token might recover its price and leave investors at a loss.

An alternative to preventing massive losses is periodic purchases at different times of the token’s lifespan. For example, if you have $2,000 for investment in altcoins and stablecoins, it would be wise to split up the funds in four to five places and invest them at different intervals.

Chasing the Buzz: Hype and Dump Schemes

Due to the advent of social media, it is easy to get caught up in sensational news. Some influencers in the cryptocurrency space do their jobs really well by spreading information about new coins and the endless possibilities that come with buying them.

Most of them may own certain units of this new coin being promoted. While their followers buy into this new project, they rack up massive profits. As the market is governed by individual choices, they might choose to sell off their own units, which may be a sizeable portion of the coin’s market capitalization. This act may cause the coin’s price to fall rapidly, leaving investors at a loss.

It is important to note that despite social media buzz, a good project will speak for itself by establishing itself in the market. Ensure you do not buy coins that have been promised to outdo BitCoin without proper fundamental analysis.

Also, make time to diversify your portfolio. This means you should invest in different cryptocurrencies with varying price histories and visibility in the market. You can also invest in assets outside of the cryptocurrency space. This acts as a hedge and cushions your portfolio in cases of failed predictions, sudden dumps, or a coin’s unexpected liquidity.

Neglecting Risk Management

Investing more than you can afford to lose is a bad investment habit. Being impatient can also cause you to make irrational decisions. These can include panic buying due to the fear of missing out (FOMO) or panic selling due to a continuous downward trend. Create a trading plan and stick to it. This plan should contain the amount you are willing to invest, the projects you want to invest in, your risk tolerance, and exit strategy in periods of fluctuations. Having a plan prevents you from making impulsive buying and selling decisions.

Final Thoughts

We have gone through mistakes that can be made while investing in cryptocurrencies. These are not beginner-prone and can affect anyone who does not apply the proper measures. While cryptocurrency can provide massive profits, depending on it by investing all of your assets and waiting for life-changing results might be quite a stretch.