Crypto Investing Mistakes and How to Avoid Them

by Sandip Das from
Crypto Investing Mistakes and How to Avoid Them

If you want to avoid the top mistakes people make when investing in crypto read this complete guide on crypto investing mistakes and how to avoid them. Has a big loss ever pushed you to lose your temper and place even larger revenge trades leading to unbearable losses? Or, did someone ever lure you through social media to invest in a ‘hidden gem’ that can skyrocket in a few days? What about investing in a crypto just because everyone else is doing it? (Remember the Dogecoin mania?). These are some of the biggest investing mistakes by crypto investors.

While crypto investing can be highly profitable, many crypto traders fall prey to one or another ‘cardinal sin’ in crypto investing. Knowing these biggest mistakes new crypto investors make can help you not only avoid them but also save your precious capital. In this beginner’s guide on crypto investing mistakes, we are going to discuss:

  • How to avoid crypto investing mistakes
  • Common crypto mistakes to avoid
  • Biggest crypto mistakes to avoid as a crypto beginner
  • How to successfully trade crypto and avoid crypto trading pitfalls
  • Best crypto trading rules

1. Why crypto investing can be tricky?

Investing in any asset, be it a stock or a commodity, can be quite tricky. Crypto investing is trickier. But, why? Let’s consider these facts about crypto investing:

  • Stocks or commodities have intrinsic values while cryptocurrencies have no fundamental value. Crypto coins are not tied to any real asset.
  • Crypto is a new asset class that did not even exist even one and a half decades back. Being a new asset class means both opportunities and confusion.
  • Cryptos involve extremely complex concepts and technologies.
  • There are a large number of dubious crypto projects to siphon off investors money. Separating the villains from the heroes is not easy!
  • Since crypto is a new-age asset, many investors treat crypto coins as tools to get rich overnight.
  • There are regulatory uncertainties surrounding crypto investing.
  • Crypto has both die-hard fans and vocal critics. This means there are strong opinions for and against cryptos, which can easily confuse new investors.
  • Crypto prices are highly volatile because of a number of factors like speculation and changing demand and supply.

The above factors make crypto investing extremely tricky. Many new investors enter into crypto trading thinking of only high profits. However, most of them end up losing their capital because of a range of crypto investing mistakes. For more cryptocurrency guides and crypto promo codes, visit the JohnnyBitcoin homepage after reading this article. Let’s now look at the worst trading mistakes and how to avoid them.

2. Biggest mistakes crypto investors make and ways to avoid them

Legendary investor Warren Buffet once said, “It’s good to learn from your mistakes. It’s better to learn from other people’s mistakes.” Mistakes are an unavoidable part of any investor’s journey. However, being aware of common crypto trading mistakes most investors make can help you improve your trading success rate. Here are the top 9 trading mistakes by crypto investors:

2.1 High leverage and bad risk management

Leverage allows you to trade big even with a small capital. Leverage sounds great when you are thinking only about profits. But, what happens when things go wrong and the market moves in the opposite direction? You end up losing much more than you expected to. So, while leverage can amplify profits, they can make a small loss much bigger too.

cryptocurrency investing plan Employ a calculated risk management approach to your investments

Many new investors take highly leveraged positions expecting to earn a huge profit. This is a clear example of bad risk management. So, while you are getting excited about the potential profits, have a back-of-the-envelope calculation about the potential losses too. This is especially important when you are taking leveraged positions.

Crypto trading rule #1: Avoid high leverage to prevent big losses.

2.2 Trading on borrowed money

One conventional wisdom about trading is that - never trade with the money you cannot afford to lose. Borrowed money is definitely something you cannot afford to lose. Many crypto investors, however, violate this time-tested investing rule. When you are investing using borrowed capital, you need to pay interest, which increases your total costs.

Also, the fear of losing the borrowed capital makes it difficult to think straight and keep emotions away. Lastly, if you lose your borrowed capital in trading, it can put you in a financially difficult position.

Crypto trading rule #2: Never trade with money that you cannot afford to lose.

2.3 Falling into the FOMO trap

Have you ever missed a party and felt miserable afterward thinking about all the fun your friends would be having? Of course, next time you would have to be extra cautious of not missing any party. This is what FOMO, short for Fear of Missing Out, is all about.

fear of missing out crypto rule Avoid falling into the FOMO trap!

A crypto bull market is like a party that nobody wants to give a miss. However, falling into the FOMO trap is also one of the biggest crypto trading mistakes. When you are investing just because your friends, colleagues, or neighbors are investing, you are likely to put your money into whatever crypto asset is ‘hot’ and trending. This is not the best way to invest your hard-earned money. FOMO proves fatal when the market turns and everyone rushes to the exit door.

Crypto trading rule #3: Don't invest just because everyone you know is investing.

2.4 Avoiding stop losses

Stop losses are there for a reason, they limit your losses and protect your capital. The crypto market is highly volatile, which makes stop losses even more important. Many new crypto investors tend to ignore stop losses before learning their importance in the hardest possible way.

Think about the maximum loss you are going to bear in a trade and then put a stop loss accordingly. Also, it may be tempting to lower the stop loss or remove it when a trade is going into losses. The simple advice is that - never do it. It’s better to exit a trade when a predetermined stop loss is hit. You can always re-enter later when there is another good trading opportunity.

Crypto trading rule #4: Use stop losses to avoid the big losses.

2.5 Averaging down a losing trade

Some trades are going to be winners and the others are going to be losers. A common tendency among new crypto traders is to stay put on a losing trade while exiting a winning trade early. Also, an even greater mistake is averaging down on a losing trade. When you average down you buy more of a crypto when its price keeps falling and your original trade is going into losses.

Even though averaging down lowers your average buying price, it’s actually like digging a bigger hole. Averaging down is one of the top crypto trading mistakes to avoid. It makes an initial small loss much bigger. So, exit a trade when the stop loss is hit and avoid the temptation to load some more when a trade is bleeding red.

Crypto trading rule #5: Never ever average down a losing position.

2.6 Revenge trading and overtrading

When you are on a losing spree, it’s common to get emotional and seek revenge from the market. The bad news is that the market has no sympathy for your anger or frustration. Many new crypto traders tend to trade more frequently and take larger positions after incurring trading losses. This is an example of revenge trading. To become a smart trader, you must keep your emotions away. If one trade ends up in a loss, you will find a great trading opportunity later. It’s better to wait for those opportunities.

Most new crypto investors lose their gains because of overtrading. They feel an impulsive drive to trade more and more. So, they jump in whenever they observe even the smallest trading opportunity. However, statistics show that the more you trade, the lower your potential net gain. You don't need to take all the trades. So, to avoid the mistakes of overtrading or revenge trading, select your trades carefully. Put your money on the line only when there is a high probability trading opportunity.

Crypto trading rule #6: Avoid making trading decisions based upon your emotions at that given moment.

Now you know 6 of the most important crypto trading rules to consider during your crypto trading journey. However, that is not all, below are three more common crypto investing mistakes and how to avoid them. For more crypto guides, such as "Bitcoin ETFs explained," use our links or visit the JohnnyBitcoin homepage.

2.7 No clear trading strategy - thinking only about profits

Most new crypto traders don’t enter the market with a clear strategy. They are likely to trade based on FOMO, tips received from others, and rumors. However, a smart trader conducts their own analysis to select the right cryptos or build clear entry and exit strategies. Crypto trading is not a game of luck - rather, it’s a game of skills. You are likely to trade better when you gather information, conduct thorough research, and trade based on your own strategies.

creating a strategy for crypto trading Ensure you have a clear strategy for your crypto trades

Another cryptocurrency trading mistake to avoid is to think only about profits while ignoring potential losses. New crypto traders tend to start trading thinking only about high trading profits. However, ignoring potential losses leads to bad risk management, riskier trades, and heavier positions. So, always deploy efficient risk-management strategies after considering potential losses.

2.8 Falling prey to Ponzi schemes

Since crypto is a relatively new asset class, there is no shortage of Ponzi schemes, dubious crypto projects, and fake crypto tokens. New crypto investors are more likely to fall prey to the scammers. To avoid scammers or dubious crypto projects, always stick to reputed exchanges or crypto coins. Also, never entertain people approaching you on social media for unsolicited investment advice.

2.9 Losing the private keys

German-born computer programmer Stefan Thomas invested in more than 7,000 Bitcoins, put them in a wallet, and then lost the private key! His losses are more than $260 million based on BTC’s current price. Losing your private keys is one of the gravest crypto trading mistakes you must avoid.

When you store your cryptos in a wallet, you need a private key to access it. When you lose your private key, you lose access to your cryptos - they are practically lost forever. Many new investors have lost their private keys and millions of dollars in this process. Always protect your private keys carefully so that you can access them whenever you want.

3. What to take into consideration while investing in crypto

Crypto trading is tricky. This doesn’t mean you cannot trade cryptos profitably. You just need to avoid the mistakes crypto investors and trades make. In addition to avoiding the top crypto trading mistakes mentioned above, the following points can help you become a better trader:

  1. Always follow adequate risk management strategies to protect your capital.
  2. Never invest based on tips or other unsolicited advice. Invest based on your own judgment and analysis only.
  3. Stay updated with the latest news and developments in the crypto industry to find better trading opportunities.
  4. Invest only in cryptos with innovative technology and strong use cases.
  5. Apply technical analysts to improve your trading performance.

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4. Crypto investing mistakes and how to avoid them - FAQs

4.1 😨 Is crypto investing risky?

Crypto investing involves a significant amount of risks because of crypto’s high volatility. However, you can deploy adequate risk management strategies to manage crypto trading risks.

4.2 😕 Is it possible to avoid mistakes when investing in crypto?

Mistakes are an integral part of crypto trading. However, learning from your own mistakes or others’ mistakes can help you avoid the same in the future.

4.3 🧐 What are the most serious crypto investing mistakes and are they possible to be avoided?

Some of the most serious crypto investing mistakes are averaging down, high leverage, avoiding stop losses, and falling into FOMO. It is absolutely possible to learn from these mistakes and avoid them in the future. This post on crypto investing mistakes and how to avoid them discusses the top 9 mistakes to avoid in crypto trading.

comment Crypto Investing Mistakes and How to Avoid Them
Comments (2)
Padre101 2 days ago
Really useful advice here for any traders ⭐
Trade Responsibly