Profit and Loss in Crypto: 5 Lessons Learned
Lucas Hood last edited by
Cryptoasset trading involves a lot of emotion, and not everyone is equipped to handle such volatility. Crypto traders are sometimes tempted to put in way too much capital at once, risking their entire balance.
This is not something you should do, as it can lead to big losses very quickly if the price falls. Cryptocurrency trading involves significant risk and your capital is at risk; only keep a small amount as an emergency fund. With that being said, there are many lessons that can be learned from traders who have experienced serious losses in past periods of crypto asset trading.
It’s never fun seeing your hard-earned money disappear into thin air, but it can help you next time around if you’re aware of what went wrong and how to avoid it again in the future. Here are 5 common mistakes new traders make when trading cryptocurrencies, and how you can fix them to increase your chances of success instead:
Not Knowing What You’re Getting Into
It’s very important that you fully understand the pros and cons of trading a specific asset before you decide to put your money at risk. You need to know everything there is to know about a coin before you decide to buy it, or hold it. If you know all the risks involved, you can avoid making those mistakes that can cost you a lot of money. It’s very easy to fall into the trap of thinking that crypto is easy money, but that’s not the case anymore. You need a great deal of experience to succeed as a crypto trader.
Trading During Boom Periods Only
One common mistake new traders make is trading only during the massive pump-and-dump cycle of a specific coin. Some people believe that the only time to trade a certain coin is when it’s pumped and dumped, but that’s not true at all. You can make far more profit by only trading during times of low volatility, and holding coins right before they hit a major milestone. The best way to do this is by waiting for a local news event that is going to be talked about by the crypto community. This way, you’re not just trading on the hype of the moment, but also on a real event that has a high probability of impacting the price of the coin.
Not Using Technical Analysis in Crypto
Technical analysis is a trading strategy that combines technical analysis and fundamental research to gain a quantitative understanding of the market. Technical analysis is one of the oldest trading strategies in the world, but it's still a very important part of trading in any market. Technical analysis can help you identify patterns in the market that might predict future price movements.
Focusing Solely on Fundamental Research
A lot of traders are solely focused on fundamental research when trading cryptocurrencies. They believe that the price of a certain coin will rise or fall based on the fundamentals of its business or product. This is not always true, and it’s very important that you do technical analysis as well when trading. If you only do fundamental research, you’re missing out on a huge amount of information that is playing a big factor in the price of a coin. A lot of trading is based on sentiment and the news, and you need to be aware of that too.
Being Late to Sell
It’s normal to be a little nervous when selling your coins. You might have been holding onto them for a while, hoping for a price increase. In this situation, it’s important that you don’t hold on to your coins for too long. It’s a good idea to make a small profit on your coins from time to time. It’s best to sell some of your coins at a slight profit and keep the rest in your wallet as an emergency fund. If the price of a coin begins to fall, you want to sell a small amount of it to create some money that you can use to buy back in at a lower price. This way, you’ll avoid getting stuck with a large loss if the price falls further. If the price of a coin is dropping, it’s best to sell a small amount of it. This way, you can keep the rest of your coins in your wallet as an emergency fund. This will protect you from significant losses if the price falls further.
It can be both thrilling and intimidating for new traders to enter the cryptocurrency market. While profit and loss are part of any investment, it’s important to remember that it’s just as risky as stocks, bonds, and other traditional investments. You can avoid common trading mistakes and increase your chances of success by focusing on the following tips: