The cryptocurrency market is booming and offers many lucrative opportunities. According to some estimates, the US cryptocurrency market will be valued at $32.9 billion by 2028.
This massive growth is attracting many people who want to start their trading journey in the market. However, it is essential to understand that beginners are prone to making mistakes. These basic mistakes can cause them to incur significant losses in the short and long term. Therefore, to help you out, this article will discuss the seven mistakes beginner cryptocurrency traders make and how to avoid them.
Starting your journey in cryptocurrency trading
There are some things that you try for the first time, and cryptocurrency trading is no exception. Since you are entering the market and making trades for the first time, you will make mistakes. However, you can avoid the following seven mistakes to ensure that you can start your trading journey in an agile manner.
- How to choose the wrong online brokerage firm
First of all, it is crucial to find the right online trading platform. It is considered to be the turning point in your trading journey. You will have a hard time understanding the market dynamics if the online broker lacks the necessary tools and training resources.
On the other hand, the right online broker will provide you with features like educational resources or demo accounts to help you get started. They will also offer you a user-friendly trading dashboard to make trading easy. Therefore, you need to thoroughly research a cryptocurrency trading company before choosing it.
- Lack of knowledge of taxes and fees
Another mistake beginner traders make is not knowing about taxes. Keep in mind that simply buying/selling cryptocurrencies is not taxable. However, when you profit from your crypto trading endeavors, you have to deal with the tax implications. On top of that, you also have to deal with the fees that come with crypto trading, such as blockchain fees, exchange fees, etc. Again, choosing the right online brokerage firm is vital as it will give you a clear idea of these charges.
- Becoming part of the herd effect
One of the biggest mistakes beginner traders make is falling victim to the herd effect. While this term is common for stock traders, it can also be used for cryptocurrency traders. The herd effect refers to following one another, like a herd does.
In the case of cryptocurrency trading, the herd effect refers to investing in a cryptocurrency that is experiencing a rapid rise. Traders invest their money in a particular coin without evaluating the factors behind the price increase. As a result, they can also become victims of pump and dump scams. Getting help from a cryptocurrency fraud lawyer is best if you have fallen victim to any of these scams.
- Making decisions based on speculation
Much like the herd effect, many beginner traders make the mistake of not performing technical and fundamental analysis. They rely on their intuition or speculation about a particular cryptocurrency to determine a price increase.
However, this is likely to be a wrong decision as they do not understand the market dynamics. Learning how to use graphical instruments and analytical tools is essential to making smart decisions when trading cryptocurrencies.
- Investing in a single asset
Cryptocurrency trading is quite risky as prices undergo huge swings in a short period of time. This volatility provides opportunities for traders to make quick profits. Beginner traders make a mistake here as they believe that they will continue to make similar levels of profits in the long run.
They do not diversify their portfolios and suffer massive losses when cryptocurrency prices decline significantly. To avoid this situation, it is crucial to channel their profits into other assets. Portfolio diversification can mitigate the impact of substantial price movements in the cryptocurrency market.
- Not analyzing the situation
As stated above, the cryptocurrency market is quite volatile. Any changes in geopolitical or economic policies can lead to significant price movements. A novice trader may not pay attention to relevant news and updates. This could lead to significant losses and massive devaluation of your cryptocurrency holdings. The best way to avoid this problem is to stay updated with the changing market situation and make the right decisions accordingly.
- Forgetting Crypto Wallet Password
When trading cryptocurrencies, a secure crypto wallet becomes your essential companion. These wallets, accessed using passwords or private keys, hold your digital assets. However, losing access to your crypto wallet can be a costly mistake. Forgetting your password can result in the loss of funds, as most services cannot recover them. This is why traders need to keep it safe. Many wallets offer a backup seed phrase. This is a series of words that act as a master key. Write it down, store it safely, and never share it, as this phrase is crucial to regaining access if you lose your password or private key.
Last words
Getting started in the world of cryptocurrencies can lead to long-term profits. However, as a beginner trader, you should be aware of these mistakes. This way, they will not affect your morale and you will be sure to continue trading without any problems.
