Top 1 to 10 Common Mistakes Newbies Make when trading cryptocurrency That Can Be Avoided!
1. You Don’t Know the Basics of trading cryptocurrency
Take a little bit of time to develop a basic cryptocurrency trading strategy and to understand trading Cryptocurrency.
Do you know the basics of blockchain technology and Bitcoin?
Do you know what circulating vs total supply means?
Do you understand what inflation is?
Do you know about exchanges, wallets, private keys, and public keys?
If you can’t answer these basic questions, you’ll be in trouble quick enough. Take some time to prepare yourself, it’s essential.
To learn the basics, navigate What’s on In East London – there are tons of cool resources to get started.
2. You Don’t Take Action trading Cryptocurrency
Every day, potential investors miss out on cryptocurrency investing because they aren’t confident about how to get started.
Even experienced investors miss on new tools or cryptocurrencies that could bring significant profits simply from not staying active.
Why? Because they’re afraid to make mistakes. The first step is taking action, so don’t hesitate to dive right in.
Action will result in experience, and experience will result in better decision making. In fact, the experience is all about learning from the mistakes you make.
If you feel ready to make your first investment, then go for it. Even only £10, on any exchange you want, with any payment method you like.
You can’t imagine the difference a small step will make versus not taking action.
This is where your experience will start, and you will feel the highs and lows of investing – it’s a wild ride.
3. You Don’t Understand the Technology behind trading cryptocurrency
What makes Bitcoin and many cryptocurrencies innovative is their underlying technology. But if you don’t understand the foundations of the technology, the road will be risky.
You don’t want to rely on others’ ‘knowledge’ to make your investment decisions. Until you can judge these projects for yourself, you will be missing out on big opportunities.
After all, the creators of Bitcoin and its first adopters were all techies.
To avoid this, find educational sources you trust, take the time to learn, and most importantly, enjoy the journey of learning.
Once you understand block rewards, consensus algorithms, premining, and all the fancy jargon, you will be an improved, independent investor.
Blockchain technology is continuously advancing, so keep up with it the best you can.
4. You Ignore Fees for trading cryptocurrency
Now that you’ve taken action, take your time and find the right exchange with the best fees.
When people start trading, they make lots of trades a day hoping to earn small profits. While this is nice in theory, fees are killing them. Even if they are low, it all adds up.
Do your research before you trade. To become a successful investor, you need to start taking good habits right now.
5. You Overtrade cryptocurrency
Some investors, mostly beginners, want to make 20 trades a day. This is dangerous.
Ultimately, many of them lose from fees or because they make bad trades a mistake and then trade more to recover their losses. Only to dig a deeper and deeper hole for themselves.
The reality is that there aren’t 20 good trading opportunities in a day. Trading too much leads to poor decision making.
6. You Don’t Understand Tax Implications for trading cryptocurrency
Overtrading also increases your tax liabilities in UK.
Most people think that they only owe taxes on profits that were sold back to USD/CAD, when in fact, you owe taxes on every single trade you make – even crypto to crypto.
The IRS and CRA view every trade as a realized gain or loss. Put simply, if you buy Ether with Bitcoin, they consider this a taxable event on a realized gain or loss.
They assume that you sold Ethereum to USD, then purchased Bitcoin with USD, even though this is not what happened. This is the same in UK.
Ignoring both tax implications and exchange fees will severely impact your overall cryptocurrency investment strategy.
Tax implications, in addition to accumulated fees and bad trades, is another reason why you should not overtrade.
7. You Invest Your Life Savings in trading cryptocurrency
Rule number one of investing; don’t invest more than you can afford to lose.
You should go into this ready to lose whatever you put in. Ultimately, as the price swings up and down, you should remain calm and still be living a healthy life with room for regular spending.
I’ve heard countless horror stories of people investing greedily with their entire life savings or borrowing large sums of money. This is a HUGE mistake.
Funny enough, even if you hit it big, your greed will likely win you over. For example, if you invest $50,000 and at one point have $150,000, then your mind will rationalise and normalise these winnings to feel less significant than they are.
The next thing you know, the market drops, and you are back at break even, or at a loss.
8. You Think Cryptocurrencies are Shares
Take your time to understand what you’re investing in.
Cryptocurrencies are not shares like stocks. You have no ownership in the company and receive no dividends.
If a company issues a cryptocurrency, then it is very possible for the company to profit or get acquired, with no benefit to you. A company can be doing very well, yet their coin can drop.
The only exception here may be security tokens which can grant ownership to their investors. But even then, it’s up to the guidelines of the offering.
Cryptocurrencies are a different game.
9. You Chase Cheap Coins by trading cryptocurrency
Don’t chase cheap coins with dreams of lambos and private jets.
Lots of unaware investors in the crypto space buy low priced cryptocurrencies because they think there is a higher chance of big returns.
If presented with one coin priced at £0.01 and another at £75, they blindly purchase the £0.01 coin because they think it’s easier for a coin to go from £0.01 to £0.02, rather than from £75 to £150.
This is a common trap.
There are lots of factors that affect a coin’s price, including two important ones: the circulating supply and the real world value of the coin.
More often than not, a cheap coin has a huge supply of coins, which dilutes the price of each coin. If the supply is massive and there is little real-world value, then the coin priced at £0.01 is not undervalued and should be priced that low.
A better factor to consider when looking for coins with growth potential is the market capitalization of the coin. The ‘market cap’ is calculated as [current price * circulating supply] and is often a better (although not perfect) indicator of a coin’s valuation by investors.
If you want to find the next gem coin, look for coins that have a low market cap.
Low market cap coins have more potential for growth, but they also come with a lot more risk (failure, illiquidity, etc.)
Ultimately, you should stay away from those coins if you’re still at a beginner level, and pick your next investments based on their potential real-world value.
10. You Think You Must Always Be Right
I hate to tell you this, but get over yourself. You’re not always right. And it’s okay.
Investing is a game of speculation which involves some amount of luck – even for professional investors. To be a winner in this space, you only need to be right a certain percent of the time.
For example, if you 2x your investment 55% of the time, then you can afford to lose 45% of the time as you will make money in the long run.
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Things To Avoid When Trading Cryptocurrency (Part 2/5) will be on What’s On In Bromley.
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