Are you interested in trading cryptocurrency, but aren’t quite sure how to get started?
Trading crypto can be very lucrative. But, if you don’t know what you’re doing, it can also cause you to go broke. If you’re new to crypto trading, there are some things you need to know before you get started.
Check out this guide to learn about the top crypto trading mistakes to avoid as a beginner.
1. Not Diversifying Your Portfolio
We’ve all heard the saying, “Don’t put all of your eggs in one basket”, or “don’t bet on the farm”. While these sayings may be cliche, they certainly hold true when it comes to trading cryptocurrency.
If you funnel all of your money into one place, you’re more likely to use it all. Not only should you be seeking different types of investments, but you should also be trading different types of cryptocurrency.
This way, if one currency plummets, you’ll still have another one to fall back on.
2. Not Understanding the Risks
While trading cryptocurrency can pay off, it’s important to understand that it’s not a sure thing. The crypto market is extremely volatile, and coin prices can drastically rise and fall in a matter of hours.
As a beginner, this means you shouldn’t invest money that you can’t afford to lose.
3. Forgetting to Maintain Balance
Forgetting to maintain balance is another major mistake that rookie crypto traders make.
Ideally, you should only have about 10% of your wealth tied into crypto. Of this 10%, about 70% should be long term holds (aka, heavily weighted cryptocurrency), 15% should be for trading, and another 15% should be in cash.
In other words, you should only be trading without about 15% of your portfolio, and that portfolio should only make up about 10% of your net worth. As we just mentioned the crypto market is super volatile, so tying all your money into it can lead to really negative consequences.
4. Forgetting to Keep a Trade Journal
In order to be a successful cryptocurrency trader, you need to keep a trade journal. With a trade journal, you should write down why you’re making a trade.
Then, you’ll be able to analyze your trade later on to find out why certain trades are yielding good results and why you’re losing on others. In other words, you’ll be able to improve your trading strategy over time with a trade journal.
If you try to keep track of everything in your head, you’re going to get your numbers messed up.
5. Following the Herd
Following the herd is another common mistake that many beginner traders fall victim to.
By following the herd, you may end up paying too much, or you may end up missing out on a hot coin. The more experienced you are, the more accustomed you’ll become to exiting trades when they get too crowded.
As a new trader, you may find yourself staying in a trader too long after the smart money has already moved out. Don’t fall into the trap of blindly following advice from crypto traders on Twitter. Instead, do your own research to make sure you’re making a solid trade.
6. Paying High Brokerage Fees
While using a crypto or Bitcoin broker can be helpful, you want to be careful about how much you’re paying in brokerage fees.
If you’re not careful, these fees can end up eating a large portion of your trading profits. The key is to find a broker who offers low trading fees and comes with high volume and liquidity.
This way, you’ll end up making more money when you trade. We suggest spending some time shopping around for a brokerage firm that offers low fees yet still excellent customer service.
7. Not Having a Trading Plan
Many beginning traders go into cryptocurrency trading with a vague understanding of what they’re doing and no real plan in place.
Don’t be one of these traders. Before you even think about making your first trading move, you need to have a plan in place. This means you need to know:
- The amount of capital you need to invest to trade
- Your entry and expiration plans
- The maximum loss you’re willing to take
By having a plan in place, you’ll prevent yourself from staying in a loss-making trade for too long.
8. Revenge Trading
Many beginner traders are also susceptible to revenge trading. This occurs when you lose on a trade, and then out of frustration and fear, you attempt to make a riskier trade to cut your losses.
You need to be mindful of doing this, otherwise, you’re going to end up in a toxic trading game where you irrationally act out and lose more money when things don’t go your way. When trading cryptocurrency, it’s important to understand that nobody wins 100% of every trade.
With the right risk to reward ratio, even just winning 40% of the time will help you cut a profit.
9. Not Understanding Risk-Reward
Last but not least, don’t make the mistake of forgetting to calculate the risk to reward ratio before you trade.
Advances traders typically recommend a 1:3 or 1:5 risk-reward ratio. For a 1:3 risk-reward ratio, this means that for every $30 you invest, you should get $90 in return. For a 1:5 risk-reward ratio, you should be investing $20 and getting back $100.
By having a clearly defined risk-reward ratio, you’ll avoid getting involved with risky traders.
Crypto Trading Mistakes: Are You Ready to Trade Cryptocurrency?
Now that you know about these crypto trading mistakes, it’s time to begin your journey of trading cryptocurrency.
Pretty soon, you’ll be turning a tidy profit with your trades and growing your portfolio. Be sure to check back in with our blog for more investment tips and tricks!