Investing in crypto can be exciting, but many new investors fall into common traps when trading and investing in cryptocurrencies. New investors can quickly lose money from poor security practices to a lack of knowledge about crypto markets. A lot of people keep making the same mistakes when they start investing.
We focus on several mistakes most investors make and how to avoid them.
1. Following the Hype
People are always drawn to purchase what is trending.
You will hear many asking;
The next $DOGE or $SHIBA is…..?
These NFTs will…?
When not so careful, such trends may lead one to get into the space without focusing on something specific. One may end up investing in such projects just because there is trending hype around them and disregard all the red flags that may arise.
Most of these do not have any long-term potential, and if by coincidence they do, they are likely already overvalued. Always avoid the hype.
2. Fail to Secure Investments
People like simplicity, even at the cost of security. You will find out that they operate their assets with the following;
The same password on all websites
No two-factor authentication
A virus-infected PC
An exchange as storage.
It is straightforward, but this is the money we are dealing with. Not just money but potentially LIFE-CHANGING money. Would you protect your bank account with the same password as the password you used to log in everywhere for the last 10 years? Take those extra steps, and do not sacrifice security for simplicity.
3. Jumping in Without Research
How often have you bought something you did not understand just because people said it was good? We all have.
The reason we diversify our assets is that we know not every great project is going to make it.
But holding 5 of them, some probably will. How will you make it if half of your portfolio is already considered "garbage" from the start? Know what you purchase; DYOR.
4. Chasing Guaranteed High Returns
This industry is wild, especially if you do not know how it works. The space has;
Pump and dump groups promising you early entries
Projects promising you 1000% apy staking rewards
Pyramid schemes
These things do not exist; if they do, they are not sustainable. You will only get a dump that you signed up for. If it is too good to be true, it generally is.
5. Using Leverage
The concept of leveraging your profits sounds very tempting. Why settle for a 20% move if I can make it into a 200% with 10x leverage?
Since crypto is a very volatile industry, it does this BOTH to the upside and the downside.
The market will quite often move against you first. Leverage will close out your position before actually winning the trade. Yes, there's a market of professionals for it, but for most of us, there is not. Just relax and enjoy normal market conditions.
6. Not Having a Plan
This is perhaps the biggest and most common mistake made of all.
When and how are you taking profits?
When are you going to purchase something?
"I will just wait and see" is easy, right?
Many of us have failed because we either did not have a strategy or did not stick to it. Why should you sell a portion of your portfolio when everything keeps going up right (bull market vibes)? Define what you are going to do and DO IT.
Takeaway
Crypto investing and trading is a risky business with no guarantees of success. Like any other form of trading, patience, caution, and understanding can go a long way. Blockchain places the responsibility on the investor, so it is crucial to take the time to figure out the various aspects of the market and learn from past mistakes before putting your money at risk.
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