Cryptocurrency is quickly becoming a household term. The Bitcoin symbol is well known throughout the world. The [price of a single Bitcoin. Anyone with a computer, smartphone and Internet connection can trade Bitcoin and the 1000s of other coins. Unfortunately, a number of crypto enthusiasts are gambling with their hard-earned fiat money. Some of these beginners are going broke and learning hardcore lessons.
Below are 10 crypto trading mistakes beginners often make that result in them going broke. We have included some tips on how to avoid making them.
#1. Trading With Real Money From The Beginning
Using actual fiat money to trade Bitcoin or any cryptocurrencies is really not a smart idea for beginners. We highly recommend utilizing paper trading from a crypto trading platform such as to gain an overall understanding of the market before diving into that world with real money.
Managing risk and having an exit strategy is key to master the art of trading; crypto or traditional currencies. These should be tested using actual money. Paper trade until you acquire some skills and comfortable enough to dive in.
#2. Trading Crypto Without Stop Loss
Emotional and erratic trading is historically the downfall of most traders. Beginning crypto traders are generally more vulnerable. To not be a victim, you must build the tolerance to quickly accept losses and move on to the next trade.
Refusing to accept loss is the main way for newbies to go broke. A stop-loss can help elevate losses. It’s an automated setting that will take action when a trade starts to go against you.
#3. Not Maintaining A Balanced Portfolio
Maintaining a balanced portfolio is critical for any trader to become successful. I, for example only invest 20% of my capital in crypto and that’s very aggressive. 70% of my cryptocurrency holding is long term (heavily invested in Bitcoin), 10% in stable coins (coins that are pegged 1:1 to the US dollar), and day trading with 15%.
#4. Adding More Money To A Losing Trade
Trading crypto and investing in it are not the same thing ( view: Bitcoin Trading vs Investing. Averaging down positions should be the main objective for an investor with the crypto assets held for the long term. Trading involves a level of risk. Traders are in it for short term gains and stop-loss when it hits. I don’t ever recommend averaging down.
#5. Not Keeping / Following A Trading Journal
Having a plan is always part of a successful trader’s strategy. You must hold yourself accountable for every single action taken. The best way to do that is by keeping detail records of every trade. This way the trader can avoid repeating the same trading mistakes. Record everything using a journal; thoughts, processes, trade results, emotional state and everything else that can help the future outcomes.
#6. Trading With More Fiat Money Than You Can Afford
A number of crypto traders are fascinated with the idea of getting rich overnight. Reading the overwhelming list of Bitcoin/crypto millionaires doesn’t help. Beginning crypto traders are often motivated to go all-in, risking every dime. The chances are as good as winning the lottery.
Most newbie traders come to space with the notion that they’re going to make boatloads of money without putting in hard work. They soon find out it’s a false reality. Unless you’re trading with a significant amount of trading capital, it’s not going to happen.
Unless the newbie is trading with $50,000 — $100,000, it’s going to be an uphill battle to make a living as a full-time professional trader. Can the profit cover living expenses without dipping into the capital? If the answer is yes, you are ready. If it’s no, your dream of getting wealthy trading crypto is going to be difficult to achieve.
#8. Putting Too Much Focus On Leveraging
This is a warning, do not use leverage at all. It’s a double-edged sword; the devil in a blue dress. For profitable trades, leverage may boost returns. However, it could compound losses when you start losing trades. Unless you’re an advanced trader, take leverage out of your trading strategies. Leverage is the quickest and surest way to go broke.
#9. Utilizing Trading Patterns You Don’t Understand
Technical analysis is often not beginning crypto trader’s best friend. They’re terrible at TA, period. They often read charts wrong; seeing patterns that are not really there. Developing a simple trading system is the best way to go. It will help you avoid making bad decisions.
#10. Fear Of Missing Out (FOMO)
2017–2018 was the year of Bitcoin/crypto FOMO. Crypto newbies have the tendency to simply follow the herd. The majority of hot coins are now labeled “shit coins,” but don’t tell a newbie trader that.
When a crypto coin is too hot, experienced traders get out and run for hills. Beginning traders conversely want to stay in and reap more benefits. Guess what? The smart money has moved out. When that happens, the coin has no other way to go but down.
By the way, Twitter is not a source for making trading decisions. It’s often used by beginning cryptocurrency traders as such but is the quickest path to financial ruin.
Have you made any crypto trading mistakes or have some you would like to share? Use the comment form below.
Those get-rich-quick avatars, schemes, tips, and advice on social media websites are manipulating you in order to make a profit for themselves.
Trading is difficult. Trading a new asset class like cryptocurrency is even harder. In order to capitalize, a trader must take baby steps, learn the basics, manage risk. Having a plan is key. Good or bad days, stick to the plan.
Originally published cryptozink on October 8, 2019.