Top 6 WORST mistakes to avoid in trading Cryptocurrency

 

Top 6 mistakes to avoid when you’re investing in cryptocurrency

These are super common mistakes that beginners make all the time that can completely blow your cryptocurrency portfolio. You can lose all your money.

1.       Buying high and selling low

 

The price of cryptocurrency goes up like crazy and think “oh now is the time to buy, like people are jumping on this opportunity, I think I need to catch this train before it leaves the station right it’s like fomo” - but then the very next day the price does low. That doesn’t necessarily mean that the cryptocurrency has tanked and that you’ve necessarily lost money unless you sell it but it’s really common for beginners to watch big pullbacks in crypto and then get scared and sell it and then they lose money, but then the next day you know recovers and then that trend continues so this is probably the most common ways people buy high and sell low but it’s the exact opposite of what you should do so basically you have to train yourself to think opposite.

 

2.       Buying a cryptocurrency because it’s cheap

 

The logic like “Hey I’m going to buy you know litecoin for example because it’s way cheaper than bitcoin and if it ever goes up to bitcoin’s price then I’m just going to be a bazillionaire”. Well there’s a huge problem with that because you’re looking at the unit price of the cryptocurrency and not thinking about the market cap so when you’re talking about like buying a cryptocurrency because it’s cheap you’re talking about the unit price. The real problem with that is it fails to factor in how many coins are actually in the supply or how many coins there are total. One of the reasons that litecoin is cheaper than bitcoin is because there are more coins in existence and when you’re looking at the unit price you also have to look at the market cap which is basically the price of each coin times the supply and you have to compare cryptocurrencies that way because that’ll help you determine whether it’s even plausible that a coin like litecoin would surpass bitcoin in value because in order for that price to go from let’s say like just fifty dollars as an example up to like twenty thousand dollars as an example then the market cap would have to go up about 400x which means that the entire market cap would be worth trillions of dollars which is an incredibly unlikely scenario, so that’s we have to think about other factors besides just the unit price and avoid buying a cryptocurrency just because it’s cheap.

 

3.       Looking for like 100x gems and actually making this the core of your investment strategy.

 

It’s really dangerous to put all your eggs in this basket and to make this the core of your strategy for lots of reasons so number one is beginners are probably going to lose money with this strategy all right sure all coins can go up like crazy really fast but you know what goes up must come down. Beginners are really prone to selling cryptocurrency when it goes down really fast because they get scared they don’t want to lose money so if you put money into an altcoin that goes up really fast and then drops significantly, you might freak out and sell your entire portfolio and you might sell it at a loss. The other problem with this strategy is it takes a lot of time and effort because you have to spend all your time researching these coins and then watching them like crazy because the price can go up and down in a matter of hours.

 

4.       Trying to use leverage

 

This is a bad strategy for pretty much all beginners. This something that’s really only better for advanced traders. So, leverage is basically using borrowed money to invest in cryptocurrency that you have to pay back and two really common ways to do this are basically to increase your exposure and for shorting. If you think the price of a cryptocurrency is going to go up, you can borrow money and instead of buying like 10 units of the cryptocurrency. You could buy a 100 units like you could basically increase your exposure by 10x. that’s what 10x leverage is. And if the price goes up then you make 10 times as money. Sounds really attractive but there’s a big problem with it because if the price goes down enough during that time then you can be liquidated and basically you can lose the money that you have as collateral for that leverage. That’s how most cryptocurrency exchanges work. Other people use leverage for shorting so basically they think that the price is going to go down and so they borrow the cryptocurrency, sell it and then wait for the price to drop, buy it back, return the original amount and then make a profit that way. So, this an advanced strategy and most beginners are going to get wrecked this way to because they’re just going to be wrong when they think about which direction the cryptocurrency is going to go and they’re going to get liquidated. Either of these scenarios, using leverage is probably on of the fastest ways to completely wipe out your trading account and leave you with nothing.

 

5.       No diversification

 

This basically means that you’ve put all your eggs in one basket and you’re betting that that’s going to work and most of the time you’re never going to be a hundred percent right and you need to diversify and assume that you’re going to be wrong in some way and have some sort of hedge. Instead of buying one cryptocurrency and being 100 sure that you are right then you might want to buy a few different ones that are lower risk as a hedge because they might outperform your top pick. Diversified portfolio would look like 50/50 bitcoin and ethereum for example, these are the two biggest market cap cryptocurrencies they both have a pretty long price history and are both very fundamentally sound investment so that’s not much diversification but it’s better than nothing and this is a pretty good portfolio for a lot of beginners.

 

Other ways to diversify are having other actual investments besides cryptocurrency. Ex. Real estate, so that’s an option, other option is stock market.

 

6.       Buying more than you can afford to lose

For beginners who did this and then they actually lose money whether it’s just paper losses or actual losses, it actually like impacts their life in a really negative way so that’s what I would say is the definition of buying more than you can afford to lose. Some put money that they really need for other stuff into crypto and they lose it and it has a big negative impact their life. So you have to be really careful when you’re thinking about that so another thing I’ll say is basically I’s hard to make a life changing amount of money with cryptocurrency without putting in a significant amount that makes you sick to your stomach when you watch it go up and down, up and down. Find that fine line of something that makes you feel like you’ve really put something in but also not so much that if you lost it would ruin your life.