Cryptocurrency is among the most complex and sophisticated technologies currently available to the public.
It is often said that crypto combines everything we don’t know about finance, with everything we don’t know about technology, so you are not alone if you make some mistakes in your journey.
Most of us have made mistakes when learning how crypto works, and oftentimes we are having very similar experiences and learning many of the same lessons.
Hopefully some of the experience that our team has picked up in the industry can save you from falling into some of the common mistakes that traders make.
“FOMO” buying and Panic selling
Markets are driven by emotion and the traders who are able to stay calm and make rational decisions are typically the ones who come out on top.
Many traders will be overcome with fear and sell when they see a major dip, or they will be overcome with greed and chase after the top gainers of the day whenever they see green candles.
This is what we call FOMO (Fear Of Missing Out) buying, and panic selling, and traders who fall into this trap are making the mistake of chasing trends, which will always leave them a few steps behind the people who are actually making money and catching the pumps.
If you see an asset show a significant rise in value over a short period of time and become interested in buying some, it’s usually best to wait for the inevitable correction that almost always comes after a rally like that.
Patience will pay off in the long run, because no matter how strong the rally is, early holders will always take profits along the way, which should give you a better entry point.
As far as panic selling goes, if you are confident in the fundamental analysis that you have done on a project, and nothing has fundamentally changed, you will not be so tempted to sell during a dip.
Bad Operational Security
Having total control of your finances is one of the primary benefits of cryptocurrencies, but this also means that you are the one who will take full responsibility if something goes wrong.
This is why it is essential to practice good operational security.
Never give away your seed phrases or passwords, and always keep them offline in a safe place.
Sending Transaction To Wrong Address
It is very easy to send a transaction to the wrong address if you are not careful. It is also important to be sure that you are sending funds on the correct network.
For example, Tether, one of the most popular USD stablecoins, can be sent across multiple different networks, including Ethereum and Tron.
Many other tokens are built to be compatible with multiple networks, but when sending from one wallet to another, you need to be sure that your send and receive addresses are on the same network, or you can risk losing your money.
One of the best ways to be absolutely sure that you are sending to the correct address, is to send a very small amount as a test before making the whole transaction.
This can be expensive on networks with high transaction fees, but when you are sending large amounts of money, the extra transaction fee is worth the peace of mind that you will get from knowing that your funds are going to the correct address.
Being Too Risky With Leverage
Leverage trading can be very tempting because it offers a chance at huge gains on a small investment, but it is important to understand the risks of liquidation when trading with leverage.
If you do decide to leverage trade, never use an exchange account where you are storing funds, and don’t keep any money in that account that you aren’t entirely willing to lose.
If you are holding an asset in your private wallet, a flash crash or quick price fluctuation will not affect you that much, but if you are leverage trading your entire account could be wiped out if the price goes low enough.
This is why setting a stop loss in these situations is especially important, because it could save you from reaching your liquidation point in an event of a flash crash, which happens frequently in the world of crypto.