Cryptocurrencies are closing in on a decade of existence. Over the past few years, cryptocurrencies have been booming at a rapid pace. Over 1500 cryptocurrencies are already being traded in the market at the moment and hundreds of other ICOs are lined up for a potential release.
Considering the sheer size of this market – which has been predicted to hit a trillion dollars this year, this can become a little overwhelming for beginners and new traders.
Often when new traders enter the markets they tend to make some mistakes. Considering that a recent eToro survey concluded that 81% of people involved in the cryptocurrency trade are beginners in trading – there is a strong need for a set of directives for traders which will help them make better decisions when it comes to trading.
While there are no hard and fast set of rules and principles which can ensure a 100% success in cryptocurrency trading – there are some red flags which one needs to watch out for. Let us take a look at some of the most common mistakes that cryptocurrency traders tend to make and how to avoid them. So we’ll compile cryptocurrency red flags for you, it includes everything that crypto traders should avoid.
Invest what you can afford to lose
This is the first tip that every cryptocurrency trader needs to keep in mind. Sometimes the lure of the markets can be too enticing for traders and they invest more than what they can afford to lose – which affects their daily life and business in case of a loss.
Markets aren’t what they seem and volatility is what makes the cryptocurrencies so unpredictable. Market manipulations are extremely common and sometimes people who hold a lot of cryptocurrencies can easily manipulate the prices of the currencies.
There have been cases in the past where people have mortgaged their home to get a loan for crypto trading – but have ended up homeless and jobless! One must always ensure that they invest only what they can lose without it affecting their day to day life.
Cryptocurrency community often jokes about ‘mooning to the lambo’ but tends to ignore what happens to those who end up losing a significant portion of their wealth.
A thorough research
Investing in cryptocurrency markets is different from investing in stocks because the cryptocurrency markets have been around for a significantly lesser time. Hence, any investment that has to be made in cryptocurrencies needs to be made with a thorough research.
Before investing in any cryptocurrency, there are a number of questions that you need to ask yourself.
- Does this cryptocurrency offer a solution to a real-world problem?
- Is that really a ‘problem’? Are there other methods which currently tackle this issue?
- Do I believe that the solution that this currency offers has the potential to solve this problem?
- Are the goals practical?
These help you establish if the cryptocurrency is created to actually bring about a change – or is it just another coin in the markets that has been created to make people invest in it for the sake of investment. Sometimes some cryptocurrencies might have impractical goals – ‘bringing peace on earth’ sounds good – but is completely impractical!
Research also needs to be carried out when it comes to the people involved in the project. Certain coins, which are created with the sole intention of scamming investors often use stock images to represent their owners. Look up the owners on social media – check if they are really who they claim to be! Look up for their involvement in the community and the kind of discussions that they have had in the past.
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There is no ‘Right Time’ to invest
Another thing that needs to be kept in mind by new cryptocurrency traders is that there is no ‘right time’ to invest.
There won’t be any magical moment where the skies would turn yellow – indicating that the time has come to invest. Markets fluctuate frequently and every time they have dipped – they have managed to bounce back. Hence, any time is a good time to invest into cryptocurrencies and anyone claiming to know ‘just the perfect time’ is probably making things up.
The perfect time to invest into cryptocurrencies is any time you have the time and the money to invest.
Don’t get emotionally involved
As absurd as it sounds – do not let emotions play a role when it comes to trading. A currency might have given you profit earlier in the year – but it is not necessary that it will keep giving you the same returns round the year.
Do not invest in a currency simply because it has worked out for you or for your friend in the past – research, analyze and then invest!
It is important to diversify your portfolio and to set up a proper stop-loss system – basically, do not hold on to just one currency – and do not hold on to it even if it is making a major loss just because you are emotionally invested in a currency.
Investing with a strategy
Talking about stop-loss in the point above, let us now take a look at strategic investing. Traders need to realize that investments should not be made on a whim – but they need to be thought out. It needs to be a structured process and not based on a random fantasy.
Strategies need to be set. Many cryptocurrency exchanges provide tools to the users which helps them make smart and strategic decisions. Setting up limit orders and stop-loss based orders can help a trader make excellent trading decisions without even keeping an eye on the markets all the time.
Novice traders are advised to set up a trading strategy – if the price reaches this level – i’d sell it off or if the price drops to this level – i’ll sell it off before i incur losses. This is the kind of approach that needs to be followed.
Stay up to date with the news
Finally, it is critical in the world of cryptocurrency trading to stay up to date with news at all the time. In this market – you need to be vigilant all the time. An event happening in an obscure island nation halfway across the world could have a significant global impact! Policies of one country could affect the price of cryptocurrencies.
Websites like CryptoGround can help you stay updated of the latest going ons in the market. Following the news can help you anticipate a shift in the trends before it actually happens.
New investors need to keep in mind that these factors are critical to making a wise decision. There is no magic wand in the world of cryptocurrencies that would help you make just the perfect decision – however, there is indeed a way via which you can avoid making the wrong decisions. Following these basic what-not-to-do advises mentioned above can help you avoid making wrong decisions! Happy trading.
Author Bio: Prince Kapoor is Freelance Marketing Analyst and Blogger. While not working, you can find him in gym or giving random health and marketing advises to his colleagues.