Crypto trading has brought some people great fortune, yet it can also cost them dearly as many traders make costly psychological errors that lead them down a destructive path.
One of the biggest mistakes people can make when investing in cryptocurrency is being caught up in hype surrounding certain coins. Sometimes this excitement is completely without foundation; keep an eye out for any carefully planned marketing strategies to identify any possible false leads.
1. Don’t Get Caught Up in the Hype
As cryptocurrency trading can be very volatile, it’s essential that investors approach it with caution and professionalise their trading as any other market would. Don’t fall prey to hype or trendiness!
In volatile markets, successful cryptocurrency traders remain calm and rational by tuning out hype and looking at coins’ technologies, teams, roadmaps and overall potential long-term. Furthermore, they research any advice given from others regarding investments as well as having an established risk management plan in place.
Holding money on an exchange can be risky as they could be compromised and you could end up losing all your crypto. Make it a rule to move any coins you’re not actively trading from an exchange into your own wallet for extra protection; this basic safety rule should form part of every trader’s arsenal. Keep track of all trades you undertake and set stop-losses as necessary.
2. Don’t Be a Market Maker
Trading involves betting on the price of Bitcoin and capitalizing when its value rises enough. Due to this high degree of risk associated with bitcoin trading, many traders lose more money than make it back.
To profit from bitcoin trading, it is necessary to do your research and formulate an individualized trading strategy tailored to your circumstances. Furthermore, market makers play an essential role and must understand their impact on prices.
Market makers provide essential liquidity and help the cryptocurrency community exchange assets at fair prices, but can become risk-averse during periods of extreme volatility, reducing or withdrawing their offers altogether, which in turn has adverse repercussions for projects needing liquidity the most. Therefore, it is crucial not to act as a market maker when trading; instead focus on buying low and selling high.
3. Don’t Leave Your Money on an Exchange
Keep your bitcoin off an exchange to protect it from hacks or vulnerabilities on that platform, such as hacking attempts. Transferring your coins to an unconnected wallet like non-custodial ones offers greater peace of mind for you and your coins.
Trading bitcoin can be an excellent way to earn extra income on the side, but it is essential that you perform sufficient research before investing any funds. The market can be highly unpredictable and significant events may have an effect on its price.
Avoid being influenced by other people’s opinions; many Youtubers who promote cryptocurrency projects for payment tend to get biased opinions of its potential, which could sway your own view on its worthiness. Before investing any funds it is wise to conduct thorough research and develop a comprehensive plan before doing any spending - this will protect against costly errors as well as scammy trading bots posing as legitimate companies.
4. Don’t Be Afraid to Diversify
Cryptocurrency trading is a zero-sum game, meaning that for every trader who wins there must be someone on the other side who loses. Diversifying your portfolio can mitigate against this risk by spreading investments across various ecosystems and tokens - although regular reallocation may be required due to some coins rising while others decrease in value; it’s essential that only funds you can afford to lose are invested into crypto markets.
The cryptocurrency industry received tremendous media coverage, making it a hotbed of scammers. Don’t let this put off taking part in the market - instead do your research and set realistic goals for yourself. Additionally, diversify your trades so as to reduce risk - for instance you could implement the barbell strategy where 80% of assets are allocated towards low-risk investments while 20% in high-risk ones.