Current news in the investment scene has put the spotlight on Bitcoin and Ethereum as both have reached their all-time highs this year. Also, you may have heard how plenty of people made thousands, if not millions, of money delving into the crypto market. With all this buzz, it’s no surprise if you’d get curious about investing in cryptocurrencies, too. 

However, one of the major characteristics of cryptocurrencies is their volatility. This means as fast as their prices rise, the same goes when their prices fall. This makes cryptocurrency challenging to navigate, especially if you’re new to investing in general and don’t have an idea of how cryptos actually work. Besides, cryptocurrency is said to be a concoction of everything you don’t understand about finance and computers. (1)

Mistakes every beginner should avoid making

If you’re a beginner, you can’t simply invest any amount of money before joining the crypto trend, especially since it’s a very complex world. Fortunately, this article presents some of the mistakes you should avoid as a newbie in the crypto market.  

• Not coming up with an investment plan

As an investor, having an investment plan should be your first consideration. You can start by setting aside a portion of your salary every month for investment. Ask yourself—how much percentage of my weekly or monthly income should go to my investment account? Will my portfolio have a “high risk, high reward?” What’s my ideal profit target and stop loss limit? 

These are some of the questions you need to ask yourself when creating an investment plan. And like with any other strategy, try your best to stick with it. Of course, you may also need to change your plans subsequently depending on the circumstances. 

• Not applying a risk management strategy

Another mistake you can avoid as a beginner is failing to apply a risk management strategy. One such strategy is stop loss, which is necessary to limit the maximum loss you can make on a position on a digital currency. Thus, if the trade goes against you, you can avoid losing more money by automatically exiting the trade. Even the most confident crypto traders suggest using this feature. Thus, it may be a mistake not to use this strategy in every trade you make.

Fortunately, crypto exchanges, especially those considered the best by reputable ranking sites like Best Crypto Exchange Australia and other experts on this subject, have a stop loss option. Hence, there’s no reason for you to skip on this feature.

• Involving emotions when trading

The main point of having an investment plan is to refrain from making trade decisions based on emotions. This means you should make decisions to implement your strategy based on logic and statistics, not greed, fear, or uncertainly. 

That’s why successful investors are usually the patient ones. They always perform analyses, implement different strategies, and read blogs and forums before making a decision, such as whether to buy, sell, or trade. Patience is an important attitude to practice when trading. As the Oracle of Omaha said, the stock market is basically the transfer of money from the impatient ones to those who are willing to wait. (2) 

Moreover, having patience and a good plan is crucial when navigating the uncertain waters of cryptocurrency. This is because having a good plan, which is based on facts and not emotions, will help you avoid panic buying or selling, which beginner investors usually do. 

For instance, as a beginner, you invested USD$55,000 in a certain cryptocurrency. As the market starts to crash, you fear the price of this crypto will fall to USD$15,000. In such a case, you start panicking and selling your investment for USD$45,000, which is a loss for you. And since crypto is volatile by nature, the moment the market rebounds, you panic buy again at USD$50,000, which is yet another loss. This easy way of losing money can, however, be prevented by creating an investment plan, such as when to buy and sell. 

• Failing to do a fundamental analysis

Usually, beginners would simply start picking a popular cryptocurrency and start buying and trading them, especially if they’ve read about the benefits of owning digital assets. Although this can be a good strategy sometimes as you’re “riding the wave,” it can also be a big failure for you. This is especially true if you bought a crypto during a peak, which is usually followed by a big crash, turning your portfolio red. 

One way to avoid losing money is to conduct a fundamental analysis of the digital coin you’re planning to buy and trade. Here are some questions you should consider: 

• What is the coin’s function?
• What’s the predicted future of the cryptocurrency? 
• Who manages the cryptocurrency? (3)

With these questions in mind, your next step is to have a shortlist of digital coins you want to invest in. Remember, what works for one trader may not work for you. Hence, find your trading system, too, so you can be comfortable in your endeavors. 

• Not reading about the market

Aside from conducting fundamental analysis, it’s also important to be fully informed about what’s happening in the crypto world. It’s therefore highly encouraged to read news from different reputable sources. Keep an eye on news about cryptocurrency regulation and if there are any large-scale purchases made by crypto whales. Both of these factors can greatly influence the price of digital assets. 

Being informed about what’s going on in the crypto market will help you become aware of what’s going to happen with your investment. It can help you make a logical decision whether to buy or sell. 

Final words

Since the crypto market is both an exciting and unique place for investors, you’ll have plenty of opportunities to make a lot of money, especially if you understand what you’re doing. So if you’re planning to dive into cryptocurrencies, it’s important to avoid doing the things mentioned above. By doing so, you’ll also stay ahead of various investors, giving you a competitive edge. 

References

1. “7 Mistakes People Make When Investing In Crypto (and How To Avoid Them)”, Source: https://medium.com/coinmonks/top-7-mistakes-people-make-when-investing-in-crypto-24a4ade5056
2. “6 Biggest Crypto Mistakes to Avoid as a Beginner”, Source: https://swyftx.com/learn/crypto-mistakes-to-avoid/
3. “13 Worse Trading Mistakes Crypto Beginners Make & How to Avoid”, Source: https://coinsutra.com/trading-crypto/mistakes/
4. “Bitcoin whales: what are they – and how are they affecting the cryptocurrency’s price?”, Source: https://www.businessinsider.com/bitcoin-whales-the-key-facts-figures-you-need-to-know-2021-1