Most beginner traders lose money. Meanwhile, lots of experienced traders are making a killing. Interestingly, those who lose money in cryptocurrency trading blame it on the volatility of crypto prices while those who make money have the same volatility to thank for their profits. It all boils down to the right strategy. Additionally, there are some common mistakes traders make when cryptocurrency trading.
Here are 5 reasons why most people lose money when cryptocurrency trading.
Cryptocurrency trading is more than merely buying and selling. You must develop a strategy that works. A good strategy will tell you when to enter a trade, where to take profits and when to exit the trade. Most beginners trade with no strategy and just rely on their emotions and this is a sure way of losing money.
Pump and dump
Just like penny stocks, altcoins are very susceptible to pump and dump traders. These are traders who pump the price of an altcoin only to dump it after they have made their profits. Most novice traders jump on these pumps and this means they enter the trade too late into the play. Buying a coin because you see the graph going all green is almost a guaranteed way of losing your money.
A big chunk of traders are victims of the Fear of Missing out (FOMO). For instance, you read or hear of someone that made a fortune by buying a certain cryptocurrency and because you also want a fortune; you quickly rush to buy it. FOMO traders don’t take time to study the trends and know when best to buy or sell and they eventually lose money.
Some exchanges give you the option of using a leverage account in order to increase your buying power. How it works is they loan you money for every purchase you make. For instance, a leverage of 1:20 means you get 20 dollars for every 1 dollar you invest. This makes it possible to make better profits whenever you are in profit but unfortunately, it also means you incur greater losses. You risk losing even more than your initial capital. As a beginner, you should steer away from using a leverage account.
No stop loss
Because cryptos can change in price drastically, it is always a good idea to have a stop loss in place. Most exchanges have the option of setting a stop loss but even if the one you are using doesn’t have that feature, you should still have a mental stop loss. Cutting your losses quick will help prevent further loss in your account.
So there you have it. If you can be alert for these 5 common cryptocurrency trading mistakes, you will avoid losing money in your crypto trades. And if you make a small loss, remember even the most experienced traders make losing trades once in a while but as long as you manage your losses and take your profits early, you should be just fine.