Do you want to make money from trading cryptocurrencies like Bitcoin? Cryptocurrencies have moved from a niche technological development to a significant investment asset in a short period.
The Bitcoin price has reached all-time highs above $60,000 in 2021. But while there’s potential to make big profits from trading Bitcoin, it’s essential to understand how Bitcoin trading works, or you risk losing a lot of money.
Most investors make mistakes when they start trading cryptocurrencies. Let’s look at seven common errors with trading Bitcoin and how you can avoid them.
1. Neglecting to Do Research
Bitcoin is a high-risk asset, and as with any other financial asset, you should understand what it is and how it works before you invest your money.
Bitcoin is different from other types of investments in that it’s far more volatile than stocks and funds, so you should do as much research as possible to build up your knowledge.
Try to understand the blockchain technology that underpins Bitcoin and how Bitcoin mining works. While the technology behind cryptocurrencies is complex, having at least a basic understanding will help your decision-making. You’ll be able to spot how developments you read about in the news will affect the Bitcoin price and identify when to buy and sell.
2. Not setting a trading strategy before you start
Once you understand the basics of Bitcoin, you should come up with a Bitcoin trading strategy. It can be tempting to start buying and selling Bitcoins to make a profit, but it’s essential to have a system.
Why do you want to trade Bitcoin? Is it to make a quick profit, or do you want to build a long-term portfolio? This will affect your trading approach.
Decide which trading strategy suits you, whether day trading, buying and selling on bullish and bearish trends, hedging, or holding Bitcoin for the long term. Set solid price targets to buy and sell, and use risk management tools like limit orders and stop losses to minimize the risk of heavy losses.
3. Choosing the wrong trading platform
There are many different Bitcoin trading platforms to choose from, so you should do some research to pick one that suits your needs. Some platforms are well-suited to beginners and offer basic features, while others are designed for professional traders and are more complicated to use.
Commission fees and price spreads vary between platforms, and high fees eat into your profits.
Look at the trading interface, account fees, price spreads, and analytical tools available when comparing platforms to find one that will be simple to use and charge low fees.
You should also consider security features and use a platform that has two-factor authentication to keep your account safe.
Did you know that some Bitcoin ATMs offer access to trading signals for buying and selling Bitcoins? Check out www.bytefederal.com to find out more.
4. Following advice on social media
Many cryptocurrency “experts” on the Internet claim that you can make millions of dollars by following their calls. But Bitcoin’s high volatility makes it difficult to make accurate price predictions, and these “experts” could end up costing you a lot of money if you buy and sell at the wrong time.
There’s no substitute for doing your research to be confident in your knowledge of the market. Learning to do your own fundamental and technical analysis will make it easier to make trading decisions.
5. Using high leverage
It can be tempting to use leveraged instruments to boost your Bitcoin trading profits fast. Leverage allows you to multiply the gains you make on your money. It can generate significant returns from a small initial investment. But leverage also carries a high risk, as the heightened volatility in the Bitcoin price can quickly result in your position becoming liquidated.
Leveraged products are designed for experienced traders, so you should only use them if you have the skills and confidence to manage your positions.
6. Panic selling
When you start trading cryptocurrencies, it can be daunting to watch the wild price swings that can see your account gain and lose hundreds or even thousands of dollars within a day.
It can be tempting to sell your Bitcoin when the price drops sharply to avoid further losses. But the high price volatility means that it’s likely the price will move back up in the future, and you could be locking in a loss that would become a profit if you kept your position.
Before you decide to sell, make sure to research the market to determine whether the price is likely to rise in the future. Rather than selling, it could turn out to be an excellent time to buy Bitcoin at a lower price before the next rally.
7. Revenge trading
It can be hard to accept the inevitable losses of Bitcoin trading, but it’s essential to avoid letting emotions affect your decisions. You should remain calm and understand the reason you made a loss so you can learn from it. If you get stressed out and trade for revenge, you could end up making a wrong decision and compounding the loss.
Maintaining a balanced approach to profits and losses and accepting that trading involves both, sometimes on the same day, will help you avoid revenge trading.
Avoid these errors with trading bitcoin
You’ll inevitably make some mistakes as a new trader. But if you avoid these errors with trading Bitcoin, you’ll increase your chances of making a profit. Doing your research, having a clear Bitcoin trading strategy, and keeping your emotions in check are all keys to your success.
For more investing advice, check out the Money section on the blog!