Crypto Trading Traps or How to Avoid Typical Mistakes
The Mistakes that Make Cryptocurrency Traders Panic
The crypto-hysteria of the end of last year turned Bitcoin into a synonym for rapid enrichment. However, these expectations, not supported by an understanding of the market, knowledge of at least the basics of trading, and the correct entry point, were doomed to failure. Binaryx has compiled stories of unsuccessful traders and tells how not to repeat their mistakes.
Traders do not research the market and cryptocurrencies
Novice traders come to the “tabula rasa” cryptocurrencies with a “clean mind,” without understanding the context and internal mechanisms of the market, often even without experience in traditional trading.
As a result, they succumb to any provocative wave, any manipulation, and make quick decisions based on recent events, without seeing the big picture. Up to a certain point, they may be lucky, as was lucky for some traders whose stories we told. But most often, an inexperienced trader will mistakenly invest in assets at the time of growth and sell them at the time of fall, thereby incurring losses.
Crypto investor Rishab Baldi believes that, on average, if a new investor plans to enter such a volatile market as the cryptocurrency, then in the first three to four months he should be ready to spend five to six hours a day studying the market, players, cryptocurrencies, and cases. According to the investor, subject to careful analysis and proper planning of investment strategies for the year, you can increase the size of your deposits by 1000% −3000%.
Traders think that buying cryptocurrencies automatically means getting rich quick
Crypto trader Peter McCormack analyzed the situation on the cryptocurrency market and came to the conclusion that many novice crypto enthusiasts come to the market with such erroneous expectations that leads not only to disappointment but also to a quick loss of funds.
When the market is experiencing a take-off period, many new investors enter it, hoping to make easy profits. Moreover, all the news writes about it, and those who manage to get good money talk about their success stories. But that is how bubbles are born: this is precisely what happened in the 90s, during the dotcom bubble period.
The crypto market does not work according to the instant money scheme, it is speculative: some were able to get rich quick, but most inexperienced players lost all their investments. The cryptocurrency market, like any other, is cyclical, which means that after a period of growth, a period of decline begins.
Inexperienced traders are engaged in margin trading
Margin trading is one of the most profitable but at the same time, the riskiest strategies for crypto traders. It is suitable only for experienced players who are ready to suffer significant financial losses.
In margin trading, the crypto trader takes a loan from the broker, most often represented by the exchange, by providing the amount of the security – margin. At the same time, interest is charged for using the loan. Thus, a trader can invest in cryptocurrency in an amount exceeding his own balance.
As with conventional trading, with margin trading you can play “long” or increase, that is, bet that the asset will increase in price, or open a short position, that is, “short” – play a fall and bet that the price of the cryptocurrency will drop. However, if during a trade to increase the price of the crypto asset seriously goes down, then when it reaches a certain critical point, the trader may lose his entire deposit due to margin call – the broker is forced to close the transaction, which is carried out if the trader has not made additional funds for score. If borrowed funds are at risk, the exchange has the right to deduct the loss from the deposit of the trader’s margin account. This is precisely what happened with an anonymous trader with Reddit, who lost all of his 200 bitcoins on margin trading.
All this, of course, does not mean that you must necessarily sit quietly in a mink with scooters or without cryptocurrencies at all. In general, it all depends on your experience, financial capabilities, and willingness to wait. The latter, as many crypto enthusiasts emphasize, is critically important.