The idea of trading cryptocurrencies is something that has gone mainstream in recent times, but not everyone goes about it in the right way to maximize their chances of turning a profit. The following are a few of the key mistakes to avoid when doing this.
Not Keeping Yourself Fully Informed
The crypto market is now huge and keeping up to date on all of the latest news on every token is pretty much impossible. However, given the fast-moving nature of the industry and the role that current opinions have on the prices, it’s definitely something worth knowing about.
Perhaps the best approach here is to settle on a particular coin or two, such as Bitcoin, Ether, or Dogecoin, and follow the latest news closely. An alternative approach is to focus on genres, such as meme coins or stablecoins that are pegged to a real-life currency or asset, so that you get a broad overview of the market you’re interested in. The problem is that if you don’t keep up to date, you could miss predicted price rises and end up following the herd after the price has already climbed.
The high levels of cryptocurrency volatility mean that holding onto this asset is a test of character. With the price often rising and falling by a large degree, it’s easy to get overtaken by panic when the market is filled with nothing but bad news and falling prices. For example, the crash in the last year has seen Bitcoin drop from over $60,000 to under $20,000.
Yet, you can still make a profit in a falling market by trading rather than holding the asset in a long position. The first step is to look for a site that lets you trade crypto, such as one of the 11+ brands all fighting for the title “best trading platform in the UK”. A platform such as eToro lets you trade crypto, while others give you the option of trading other assets during a period of crypto price drops. Factors to take into account when choosing include fees and ease of use.
Not Understanding the Different Strategies
When buying a token as an investment, the key strategic element to consider is how it fits into your overall portfolio in terms of risk and diversification. If you believe in a token’s long-term value, you can then hold onto it and perhaps buy more if the price drops.
However, when it comes to trading, you need to be able to read the indicators that show short-term trends and understand how to make good use of them, like the Average True Range indicator that reveals volatility. You could also consider using leverage, which is a method of increasing the possible profit, but can also lead to greater losses if the trade doesn’t work out as you’d expected it to.
As we’ve seen, investing in or trading cryptocurrencies requires an organized and thorough approach. Although this won’t guarantee that you make a profit, it offers the best chance for you to avoid making a loss on these tokens.