Trading is as much an art as it is a science despite what technical analysts and chartists may say. This is especially applicable to cryptocurrency trading, which happens to be a developing market that tends to get volatile at times as well. Here, values can change all of a sudden because of factors such as illiquidity, herd behavior influenced by social media, and the manipulative whales. Millions of new investors enter the cryptocurrency market every year. Since cryptocurrencies are immensely unpredictable most of them lose money, which is not surprising at all. This is why there are some mistakes that must be avoided in this context as such.
FOMO
FOMO or the fear of missing out is a powerful psychological force that leads people to make impulsive decisions. As far as cryptocurrency trading goes, FOMO compels investors to purchase assets when prices are skyrocketing in the hope that they do not miss out on further gains. This means that they often buy at the top of a market cycle and this can lead to sizeable losses when the prices correct themselves inevitably. Finally, FOMO can also result in crypto scams. A lot of investors have been lulled into taking part in Ponzi schemes or buying worthless tokens because of this.
Investing without research
One of the most critical steps that you can take before investing in any asset – let alone cryptocurrency – is to educate yourself properly about the same. This is especially true for something that is as volatile and complex as cryptocurrency. Despite that, a lot of investors still invest in these without learning anything about them before they do so. You can be sure that this is the best recipe for disaster. If you do not understand what you are investing in there is a high chance that you would make poor decisions and lose money.
Not diversifying your portfolio
A lot of new investors put all their eggs in one basket and this is a major mistake in this context as well. This means that they either invest all their money in just one currency or a few of them at the most. This is a major risk because this way you can lose all your money in case something happens to the assets that you have invested in. For example, in case Bitcoin loses value all of a sudden and if it is the only one that you have invested in you could be out of luck.
Conclusion
The other major mistakes that new investors tend to make in this context are attempting to time the market and depending on emotions when they invest. If you are attempting to time the market you are running a fool’s errand without any doubt. It is impossible for any human being to be always right in predicting how the prices would be moving in the short term irrespective of how experienced they are or the quality of their investment track record. Also, please remember that emotions are out of place in trading.