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10 Common Mistakes to Avoid while Trading Cryptocurrencies

Key Takeaways
  • Simple but grave mistakes like forgetting seed phrases and passwords are so disturbing.
  • Using the wrong wallet address and making impulsive purchases can put you at a loss.
  • Lack of preparation and market research can refrain you from success.
06-Feb-2023 Pankaj Raj
10 Common Mistakes to Avoid while Trading Cryptocurrencies

One of the biggest changes brought about in the previous decade 

was the introduction of cryptocurrency. Cryptocurrency is one of the most popular parts of modern-day pop culture. Countless people switch to cryptocurrency trading after being impressed by the success of crypto tycoons.

Whilst initially assumed to be too complex to be operated by the general public, the popularity of cryptocurrency continued to grow, and today, it's discussed in every forum imaginable. With an influx of new users on the horizon, making some of the mistakes mentioned in this article is common.

Here are the top 10 mistakes you should avoid when trading in cryptocurrencies

1. Ill-planned Trading and Mining

The first mistake, and arguably the gravest of them all, is that most first-time users get too excited by the opportunities the world of crypto provides. This can eschew your perspective regarding harnessing the basic knowledge of crypto as well as blockchain. As more and more people continue to join crypto, they avoid the training and just mindlessly trade and mine instead. It's important to be prepared with the basics before beginning your journey of trading crypto.

2. Short-term Thinking

Another common mistake most users make is that they need to think their plan through before joining the crypto scene. Just like the stock market, it's imperative to think long-term and work your way around crypto accordingly. Most new and old users tend to just mine and make low-income profits that barely break even. This is a cynical practice that doesn't end up benefiting anyone. Decentralized crypto market is just opposite of regulated markets, and to trade crypto is to think long-term. While it’s volatile than the stock market, it's still important to make decisions with the endgame in mind.

#3. Crypto Passwords and Seed Phrases

To the uninitiated, the differences between the stock and crypto markets are vast. New users are constantly reminded to practice the basics and think long-term because even some of the security details, like crypto passwords and seed phrases, are important.

Cryptocurrency is kept in a digital wallet, and this necessitates the need for a password. Unfortunately, if you forget your password, your cryptocurrency may not be recoverable. Most wallets have a backup seed phrase; if that phrase is forgotten, too, then there's absolutely no way of recovering your cryptocurrency.

#4. Using the Wrong Wallet Address

Another factoid for people interested in crypto but have yet to get the chance to try it out is that crypto is transferred from your digital wallets, which is also done to send funds to another person or group.

A seemingly simple but grave mistake is mistyping the wallet address while attempting to transfer the crypto funds to your wallet. This mistake results in the crypto being sent to an invalid wallet address, and this can make your funds unrecoverable. However, due to the surge in the popularity of crypto, many recovery services have started offering their services to crypto users, although this is a pricey endeavor.  

#5. Buying During a Spike

This mistake is more than just exclusive to new users but a mistake even some of the most experienced crypto users make from time to time. As mentioned earlier, it's normal for people to want to skip to the good part of crypto, this line of thinking inculcates users with a lot of excitement and hype, and seeing the value of an asset go up makes people want to buy and sell during a spike.

This is risky, as the crypto market is notoriously volatile, and the fact that it's unregulated, unlike the stock market, means that the risks are high and potentially even detrimental. Over the years, there have been a lot of reports of people declaring bankruptcy due to buying or trading on a whim.

#6. Over-diversifying Your Crypto Portfolio

Many people are prone to making this mistake; for a good reason, diversifying your crypto portfolio is something every crypto user will agree on. However, balance is everything, especially in the world of crypto. The sheer number of options out there and the growing ambition for outsized gains make a lot of people over-diversify their crypto portfolio. Over-diversification can lead to an investor holding several heavily underwhelming assets, and this can lead to significant losses that might be hard to recover from. It's important to understand the financial and fundamental value of the asset and understand how variables and assets perform in various market decisions before diversifying your portfolio.

#7. Making Order Errors

Many cryptocurrencies specialize in simplifying their order and trading platforms so users feel more confident and at ease while using their platforms. However, most crypto exchanges have complicated platforms to conduct crypto business in, and it's very common for new users to mess up a decimal point when placing an order, which results in an error that could cost thousands. There have been studies of crypto and NFT users losing half their savings over a simple order error. Always make sure to double-check your orders or transfers before submitting them.

#8. Panic Selling

Certain situations and circumstances, especially a financial emergency, require panic selling. Although, it's mostly encouraged to avoid this. Panic selling is normal for people since money is a valuable asset. Investing it in a volatile platform like crypto makes it more susceptible to riskier situations, making people want to sell it quickly. A recent fad, mostly done by new users, is that they'll buy around $1000 worth of crypto and immediately sell it when they realize the value of the financial asset went down. It's always good to conduct extensive research on market behavior and history before going ahead with selling or buying.

#9. Keeping Holdings on Exchanges

This isn't just limited to crypto users; even conventional traders are guilty of committing this mistake. Not only is hoarding of exchanges frowned upon in the trading and finance communities, but crypto platforms are also prone to be hacked, as was done to Binance a few years ago. If you have more on an exchange than you can afford to lose, transfer it to your hardware wallet.

#10. Investing Money You Can't Afford to Lose

Every trader, whether it's the stock market or the crypto platforms, has dreamt or fantasized about that perfect investment that magically makes them a huge profit. Despite this being unrealistic, many people become way too optimistic, to the point of being delusional, and end up investing more money than they can afford to lose. One of the biggest things to come to terms with before investing in anything is that losing money is bound to happen to everyone when it comes to trading; there's no way to avoid it; all we can do is make decisions while keeping the possibility of a financial loss in mind.

Conclusion

Crypto continues to grow as crypto platforms continue to declare record profits. This has completely revolutionized the finance and trading scene forever, and it remains to be seen what other exciting opportunities show up in this new decade.


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