When it comes to trading cryptocurrency, there are many potential pitfalls to avoid. In this comprehensive guide, we cover the top things to avoid when trading crypto, with a summary of each and sources for further reading.
- FOMO (Fear of Missing Out): One of the most common mistakes is FOMO, where traders make irrational decisions due to the fear of missing out on a profitable opportunity. This can lead to buying at the top of the market and selling at the bottom. It’s important to stay level-headed and not let emotions drive trading decisions.
- Overtrading: Overtrading can lead to excessive transaction fees, as well as fatigue and burnout. Traders should develop a trading plan and stick to it, rather than constantly chasing every opportunity that arises.
- Lack of Research: Trading without proper research can lead to significant losses. It’s important to stay up-to-date on market trends, news, and events that could impact the value of cryptocurrencies.
- Ignoring Risk Management: Failing to properly manage risk can result in significant losses. Traders should set stop-loss orders and have a plan in place for dealing with potential losses.
- Investing More Than You Can Afford to Lose: Investing more money than you can afford to lose can lead to financial hardship. It’s important to only invest what you can afford to lose, and not to put all your eggs in one basket.
- Ignoring Security: Cryptocurrency exchanges and wallets are often targeted by hackers, and traders need to take appropriate security measures to protect their funds. This includes using strong passwords, two-factor authentication, and storing cryptocurrency in a secure hardware wallet.
- Following Hype and Pump-and-Dump Schemes: Traders should avoid falling for hype and pump-and-dump schemes, which can result in significant losses. These schemes involve artificially inflating the price of a cryptocurrency before selling it off at a profit, leaving unsuspecting investors holding the bag.
- Trading on Emotion: Emotions can cloud judgement and lead to irrational decisions. It’s important to keep a level head and not let emotions drive trading decisions.
- “How to Avoid Common Cryptocurrency Trading Mistakes.” Investopedia, Investopedia, 26 Feb. 2021, www.investopedia.com/articles/forex/120815/how-avoid-common-cryptocurrency-trading-mistakes.asp.
- “10 Mistakes to Avoid When Trading Cryptocurrency.” Cryptalker, Cryptalker, 16 Mar. 2021, https://cryptalker.com/trading-cryptocurrency-mistakes/.
- “10 Common Cryptocurrency Trading Mistakes to Avoid.” Binance Academy, Binance, 3 Aug. 2021, https://academy.binance.com/en/articles/10-common-cryptocurrency-trading-mistakes-to-avoid.