Cryptocurrency trading is a risky affair owing to the volatility of the crypto market. Traders need to be aware of the market sentiment and implement their trading strategies accordingly. Experienced as well as novices can make various trading errors if they do not make judicious decisions regarding their investment. Traditional trading tools for minimizing risk have to be sharpened even further when it comes to cryptocurrency. Following are some of the mistakes new traders make:
- Lack of research into cryptocurrency market fundamentals
There is a horde of experts hawking the latest cryptocurrency as the best of all time. These experts are everywhere on Twitter and Facebook and even in pop-ups on various sites. A common feature is exorbitant returns; some even do not need KYC. The hidden truth is that several cryptocurrency frauds have been caught. Even for genuine ones, these experts are like brand ambassadors hired to advertise a product. They are lending their name to a cryptocurrency just to lend it an air of credibility.
Thus, it becomes important to ask questions like in which country is the cryptocurrency-based, who are its promoters and their work experience. From when has it begun operations, its pricing history?
- Betting on uptrends
New traders often see a cryptocurrency price rising and invest in it without understanding that the price may have reached its maximum value and a correction might soon follow. A trader should know previous highs and decide how far a coin will continue to rise from its current price.
- Being a part of Pump and Dump Groups
Sometimes groups of investors get together and buy a lot of a particular cryptocurrency driving its price up and then sell it to make a profit. Smaller investors who are lured by the price rise are left high and dry when the price suddenly falls. So, traders need to be wary of sudden fluctuations in prices.
Sometimes, one of the investors is working on the side to profit from the pump and dump while keeping other investors in the dark. He may buy with the others but sell before them to book a greater profit. Thus, even being a part of a pump and dump group does not guarantee profits.
- Investing in low-priced cryptocurrency
New traders thinks that just because a cryptocurrency is low-priced, if they buy it and remain invested for a long time they will eventually make a profit. The fact is that some cryptocurrencies are just bad, their fundamentals are weak or there are unscrupulous promoters behind them. Several cryptocurrencies have gone bust, taking the investors’ money down the proverbial drain.
It’s more risk-free to check whether the current low-price is just a dip or is it more permanent than that. Investing in a cryptocurrency experiencing a dip is recommended as there are high chances of the price bouncing back.
- Setting too stringent stop-loss limits
New traders often keep stringent stop-loss limits where they sell cryptocurrencies without giving their prices a chance to bounce back like for bitcoin gambling. Professional traders mark indicators like support and resistance levels, which are prices at which cryptocurrency prices will resist falling further. These levels can be worked out for a crypto coin’s history and they can be used to predict these levels in the present condition. The stop-loss should be triggered only once this threshold is crossed.
- Failing to sell at the right time
Many times traders wait too long to sell in the expectation that the price will keep rising. In doing so, suddenly they find that the prices have dipped and they have missed out on a chance to make handsome profits. Also, they are in a quandary about whether the price will bounce back or dip even further. To avoid this situation, it is better to fix a price at which to sell regardless of whether the price moves up or down after selling. Traders can sell the cryptocurrency in stages as the price rises and book their profits, thus shielding themselves from dips.
- Keeping abreast of latest developments
The crypto market is prone to rumors, gossip, and both positive and negative news. Thus, traders should follow the latest news to track information, which may cause fluctuations in crypto coins in their portfolio.