In November 2021, the financial world was astonished when cryptocurrency’s market cap soared to a record-breaking $2 trillion. And even crazier, because cryptocurrency is so decentralized, you could be trading crypto and getting your slice of that multitrillion-dollar pie as soon as tomorrow.
Now as a rational person with a healthy sense of skepticism, you’re probably thinking, “If trading crypto is so easy, how come I’m always hearing about people losing money on short-term trades?”. And truthfully, the answer ultimately comes down to the fact that most traders are making fatal errors with trading cryptocurrencies.
Want to avoid becoming one of them? Read our list of ten common crypto trading errors.
1. Picking the Wrong Crypto Trading Platform
NBC News reported that crypto hackers had made billions off of stolen funds in 2021 alone. From exchanges to trading platforms, nobody’s cryptocurrency is ever really safe on the internet.
Now imagine you’re using one of these cryptocurrency platforms. You’ve turned a few hundred dollars into a few thousand dollars when suddenly your account is drained to zero by a group of hackers. Doesn’t sound like much fun, does it?
The good news is that because cryptocurrencies have been out for a while, you can do in-depth research on both security best practices and on the crypto trading platform you’ve chosen.
Does this company have a track record of shady behavior and hacking attempts? What happens if your coins are stolen? You might have to spend more time researching your trading platform, but when the headlines are screaming about how yet another crypto trading site has been hacked, you’ll be glad that you didn’t rush this initial step.
2. Trying to Get Rich Right Away
Here’s why some traders see crypto as the next gold rush:
The market is insanely volatile.
In the traditional stock market, if a major company’s share price was up 50 percent one week and down 30 percent the next, it would be major news. And if this level of price volatility was to continue for years on end, many investors would be slowly backing away and selling off their positions.
With crypto, however, huge price swings aren’t just the norm — Bitcoin often moves several hundred or several thousand points within the span of a few months. And it’s one of the more stable coins!
When you’re new to cryptocurrency trading, it’s all too easy to get greedy. However, even though those price swings can make for nice financial windfalls, not all trading setups are created equal.
In baseball, huge hits and home runs are exciting to watch. But most times, the surest way to win more games is to hit singles until you reach home base. You can avoid bringing a gambling mentality to your crypto trades by understanding it’s not a get-rich-quick scheme, carefully managing your risks, and being satisfied with making steady progress.
3. Forgetting About Fees and Costs
Have you ever been in a situation where you’re counting every penny before payday? You can carefully ration based on in-store prices while carefully making plans. But if you forget to account for taxes when you’re planning your grocery list, you won’t able to purchase all the things you want.
What does this have to do with trading crypto? Everything.
Fees and trading costs don’t just eat into your profits. They can single-handedly turn a winning trade into a losing one.
Let’s say you’ve made $100 on a trade. But before you even have time to say, “I’d like to have a steak, Garcon.”, it suddenly dawns on you that the money getting transferred to your bank account is significantly less than your winnings.
First, the platform charged you exchange rates and conversion fees. Then, the crypto wallet platform charged you a transaction fee. And within the blink of an eye, your winnings were whittled down from $100 to $75.
The good news is that you can fix this problem with a bit of troubleshooting.
If you’re buying coins directly, you may need to revisit your coins of choice. Ethereum, for instance, is known for its expensive gas fees.
But sometimes the issue is your trading style. Frequent traders are more likely to lose money on conversion fees simply because they’re closing more positions.
Plain and simple, it’s not enough to have a general idea of what the trading risk and reward look like with each trade. You haven’t really made a profit until you’ve calculated your fees down to the penny.
4. Not Having a Crypto Trading Strategy
Benjamin Franklin was once credited for saying that people who fail to plan are planning to fail. You may be able to get away with winging it when the question is, “What should we have for lunch during our Netflix binge?”. But when you’re talking about the fast-moving, winner-takes-all world of cryptocurrency, not having a plan is a recipe for disaster.
Are you a cautious trader who likes to have all your ducks in a row before entering a trade? Then you might not be well-suited for a high-risk and high-reward trading style.
Do you despise early mornings and the idea of looking at charts for several hours each day? You could be a week-to-week or monthly swing trader in the making.
This one is difficult because it’s not a quick and easy fix. Putting together trading rules and signals takes time, effort, and testing. But if you don’t have a crypto trading strategy or if your trading strategy is unprofitable, you could find yourself losing a lot of money.
5. Buying All the Cheapest Coins
According to CNBC, if you had bought $100 of Bitcoin in 2009, you would have had a cool $48 million in February 2021. And like investors who buy every tech company on the market while saying things like, “This could be the new Microsoft!”, many crypto investors suffer from the same fear of missing out on the next Bitcoin.
But here’s the thing:
For every Bitcoin that’s out there, you’ll find dozens of cryptocurrencies that crashed and burned before they had a chance to become valuable.
Don’t fall in love with the huge position sizes and the dream of becoming an overnight millionaire. Carefully evaluate every coin you trade and only invest in more speculative coins for fun.
6. Not Having a Withdrawal Plan For Your Crypto Trading Profits
Let’s say that you’ve been doing well for yourself and you’ve built up an impressive trading account. Do you know when and how you’ll go from crypto wallet to bank account and back again?
Plain and simple, you need a method that’s secure. You need a strategy that won’t leave your income at the mercy of hackers, wallets, and people who aren’t you.
Whether you’re funding your crypto wallet or you’re withdrawing cash from it, Byte Crypto Machines are one resource you can use to securely, legally, and responsibly get your money. But depending on your location and the resources at your disposal, you may more interested in making other arrangements or making a wallet-to-wallet transfer.
Don’t leave your profit-taking up to chance. You can protect your money by creating a disciplined and consistent strategy for making withdrawals.
7. Using Complicated Trading Instruments Before You’re Ready
On paper, trading cryptocurrency seems like it should be straightforward. You buy the coin, the coin’s value goes up, and then you sell it for a nice and tidy profit.
In practice, however, putting together trading signals, getting the hang of stop losses, and going from “What’s a Bitcoin?” to “I can quit my job to trade crypto.” is often a journey full of stops and starts. That’s why it generally isn’t a good idea for beginners to bypass regular coins in favor of trading derivatives.
For starters, picking up both basic trading and learning how to trade options for cryptocurrencies can make it difficult to learn how to do both well. And secondly, when you’re trading derivatives and futures, it’s way too easy to make an account-destroying mistake.
If you have your heart set on trading Bitcoin futures or options, there’s nothing wrong with having those business models as long-term goals. But even so, it’s still important to walk before you crawl.
Could These Errors With Trading Cryptocurrencies Killing Your Bottom Line?
From investing to security, trading cryptocurrency is a job that requires you to be on your toes at all times. Why? Because even when you’ve done everything right, you’re always one “minor” oversight or mistake away from losing everything.
We’ve just provided a list of some of the more common errors with trading cryptocurrencies that people are prone to making. But the list is endless. As with anything related to money, you’ll want to be cautious and thorough as you put together your crypto trading strategy.
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