Successful trading of digital currencies takes more than just having capital or equity to succeed in the cryptocurrency landscape.

Cryptocurrencies, especially Bitcoin, have been around for about 12 years. Many crypto millionaires have become wealthy by investing and trading cryptocurrencies. At the age of 21, Eric Finman claims to be the youngest Bitcoin millionaire in the world after he invested $1,000 in Bitcoin at the age of 12 in 2012.

However, successful trading of digital currencies takes more than just having capital or equity to succeed in the cryptocurrency landscape, one must take two core factors under consideration. First, the discipline that comes with fabricating and adhering to a crypto trading strategy, and second, the insights and precision that come with the analysis of market trends and price movements.

Beginners shouldn't jump on the crypto trading bandwagon without a strong understanding of how the market works. Cryptocurrency trading is a high-risk venture, meaning that the chances of losing your capital are high. Profitable cryptocurrency traders thrive by first assessing their investment strength and risk tolerance. In this article, we explore the common trading mistakes to avoid if you’re a beginner in cryptocurrency.

1. Investing more than you can afford to lose

There is one key rule in investment: never risk money you cannot afford to lose. While investing is important to safeguard our savings against inflation and to grow our wealth, winning trades are not guaranteed and it is not wise to trade more than you can afford to lose.

Before venturing into digital currency trading it is critical to establish a dedicated emergency fund first. Depending on your situation, an emergency fund should cover at least 6 - 24 months of expenses. This would ensure that you are financially protected against instability in case of a bad outcome while trading cryptocurrencies.

2. Buy High, Sell Low

One of the most common mistakes made by newcomers is buying high and ultimately selling low. This is exactly the opposite of what you should be doing as a cryptocurrency trader. To generate profits while trading you need to buy low and sell when the price reaches its peak. It is usual for beginners to look at charts and if they see a significant price jump, then they think it's the appropriate time to buy.

Timing market trends can be challenging and the truth is that both the market and traders are susceptible to the dynamics of greed and fear that drive short-term crowd psychology and thus cryptocurrency prices. Beginners tend to be influenced by what is known as the “Fear of Missing Out” (FOMO) and end up making the wrong moves that result in substantial losses.

One way of avoiding buying high and selling low is to learn technical and fundamental analysis. Technical analysis helps you determine the entry and exit points in a market, while fundamental analysis explains the reason for changes in cryptocurrency prices. Another way to avoid FOMO is to diversify your trading portfolio, to shield you from incurring significant losses when certain assets drop in price.

3. Trading without a plan

Many beginners perceive cryptocurrency trading as gambling. But still, some traders consistently make profits by trading digital assets. How do they do it? They have a plan, and they stick to it. Developing a plan helps you evade many mistakes while trading digital assets.

You need to understand what your targets are before initiating a trade. This helps you maintain discipline and remain focused when capitalizing on the highly volatile cryptocurrency market. Trading without a plan could result in significant losses, and it is difficult to point out where you went wrong. Although having a trading plan does not guarantee success, it helps you remain in the game for longer than individuals who trade without a plan.

4. Buying cryptocurrency because it's cheap!

To be honest, the value of a coin doesn’t mean much. The value depends on the total market cap and the circulating supply of the coin. Just because a cryptocurrency is valued at $0.50 doesn't mean it is cheap or undervalued. Similarly, just because a coin is valued at $50,000, it doesn’t mean it is expensive.

People invest in a cryptocurrency for various other reasons apart from its price. One of the most common reasons is studying the assets and determining whether it is undervalued or overvalued. Doing sufficient research helps you understand whether the value of a coin will rise or drop in the future. Many people invest in cryptocurrency because they believe in the technology underpinning it. Good technology, a small market cap, and growth potential make it a lot easier to make 100% profit while trading cryptocurrencies.

5. Using leverage

Using leverage is a pretty common mistake that has blown the capital of many newbies. Leverage is borrowing funds to trade from the trading platform that you have to pay back. You can choose to borrow 10X or even 100X of your capital and use the funds to trade. However, leveraged trading is a double-edged sword: it may amplify your gains, or broaden the extent of losses suffered. Leveraged trading is a feature that is better left for seasoned traders.

Leveraging might sound alluring to beginners, but there is a huge risk involved. If the price plummets during that time, you can be liquidated and lose all the capital that you have placed as collateral for the leverage. Leveraged trading is an advanced trading strategy and should be left for seasoned veterans in cryptocurrency trading. It is one of the fastest ways to wipe out your entire capital. You should avoid it at all costs if you don’t have sufficient trading knowledge.

Closing thoughts

Crypto trading carries with it a substantial degree of risk due to the notorious price swings and time sensitivity. If you are a beginner in the cryptocurrency landscape, you should learn the fundamentals before engaging in trading. Thorough research and practice help you understand cryptocurrency trading and position you in a better place to execute winning trades.