10 Mistakes Cryptocurrency Traders Realize Too Late

A single mistake can cost you a large sum of money. This is common in the crypto market. Of course, we don't want you to experience this. Today, we've compiled 10 important lessons that you should understand if you want to avoid making mistakes in crypto trading.

Who knows, this article might serve as a good reminder whether you're a beginner or a professional. Read on to avoid expensive lessons that might force you out of the market.

1. Trading based on emotions

Trading based on emotions is one of the most common mistakes among crypto traders. Due to the extreme price volatility, traders often allow their feelings to influence their decisions, whether it's fear or greed, leading to irrational trading. Examples include panic selling when prices drop or buying more when prices spike rapidly, without careful technical analysis.

Such emotionally-driven decisions often result in losses (in most cases). To be a good trader, one should practice emotional control and stick to a pre-planned trading strategy, separating personal feelings from objective data analysis.

2. Lack of knowledge about the token before trading

Many novice crypto traders enter the market with excitement and hopes of quick profits without thorough research. They lack knowledge about the tokens they trade, often following market trends instead of carefully understanding the technology behind each token.

 The case of Luna coin is a clear example. The incident began when an attacker sold off $285 million worth of UST coins, causing panic selling and UST to lose its $1 peg. This resulted in LUNA's price plummeting by over 99% within days, from $65 to mere cents.

 Despite the severe price drop, some investors went long, hoping for a price recovery, leading to massive losses. Many lost huge sums not only from the sharp price drop but also from betting on the price returning to its previous levels.

3. No risk management

Failing to set stop-loss points or not having a plan to handle market volatility is a mistake that can have severe consequences. The crypto market is highly volatile, with prices capable of skyrocketing or plummeting within hours. Without a stop-loss point, traders risk massive losses if prices drop sharply.

4. FOMO (Fear of Missing Out)

 Johannes Eisele | AFP | Getty Images

One of the serious mistakes crypto traders make is being dominated by the Fear of Missing Out (FOMO). Traders rush into the market without analysis, often saying, “I might miss the boat.” They focus on potential profits while overlooking hidden risks, which often (and frequently) leads to capital loss.

The crypto market is extremely volatile – a sharp rise in 5 minutes could be followed by a severe drop in 1 minute. Therefore, before trading, one should analyze carefully and set stop-loss and take-profit points.

5. Lack of diversification

This mistake is particularly common among traders who prefer small-cap coins and invest all their money in a single digital currency, which is extremely risky. Remember that crypto coins have unique risks unlike other assets, such as technical issues, hacking, or protocol flaws, which can cause a coin's value to plummet rapidly.

 If possible, for those who like trading small-cap coins, it's advisable not to put all their money there. For medium to long-term holdings, it's recommended to diversify investments across multiple coins or other asset types to reduce risk. Also, closely follow news when holding specific tokens.

6. Lack of patience

Many people enter with hopes of getting rich quick but end up disappointed when they see prices fluctuating wildly. The expectation of high returns in a short time leads novice investors to make hasty trading decisions. Some can't bear to see prices plummet rapidly, so they rush to sell at a loss, even though holding on might have led to profits later.

Despite analyzing that prices should only rise or fall to certain levels, when faced with real situations, they can't handle it emotionally. Traders should practice controlling their emotions and not panic over temporary volatility.

7. Trading beyond your means

Using more money than you can afford to trade takes many forms, such as using funds needed for daily expenses like rent, food, or medical care, or using all your savings hoping to multiply your capital. This approach increases trading pressure. When using essential funds for trading, it causes excessive worry and stress, leading to poor decision-making and heightened emotions like greed or fear, which negatively impact judgment.

Moreover, losses directly affect daily life, causing financial problems. The correct approach is to clearly separate trading funds from daily expenses, using only excess money that isn't needed in the short term for trading.

8. Not following the economic calendar

The crypto market often experiences high volatility during important economic announcements, such as unemployment rates, consumer price index, or central bank monetary policy meetings. Digital asset prices may surge or plummet within minutes after these announcements, creating both opportunities and risks for traders.

On the opportunity side, we can profit from short-term price movements, with chances to buy or sell during rapid price changes. However, the risk is rapid losses if holding coins without paying attention to news, not setting stop-losses, or not adjusting strategies. Traders should be cautious, have appropriate risk management strategies, and avoid investing too much during highly volatile periods.

9. Over-reliance on indicators

Trusting indicators too much is a trap that both novice and professional traders often fall into, viewing indicators as magic crystal balls that can predict everything. In reality, indicators are just analytical tools, not 100% accurate decision-makers for all situations.

Good trading shouldn't neglect other factors affecting the market, including fundamental and external factors. It's recommended to study and understand the strengths and weaknesses of each indicator to use them more effectively.

10. Not understanding the basics of price movements

Understanding the basics of price movements in the cryptocurrency market is fundamental for traders. We must understand that digital currency prices often fluctuate rapidly and dramatically, depending on various factors. The main principle is supply and demand - if demand exceeds supply, prices will rise.

Additionally, market emotions like fear and greed can significantly impact prices. External factors such as changes in laws or government policies regarding crypto can also cause sudden price shifts. Understanding these factors helps traders better predict market trends.

Recap

Before trading, we recommend everyone to have the right attitude about trading. If you profit from trading, use that method to improve. If you make mistakes, use them to adjust. Always evaluate yourself, don't be overconfident or lack confidence. Accept the risks and volatility of the market, viewing them as the nature of cryptocurrency trading. Don't expect unrealistic profits in the short term.

Making hundreds of percent profit in one day is unlikely. Be patient and disciplined in trading. Only use money you can afford to lose. Acknowledge that fear and greed are natural emotions, but don't let them dominate your decisions. Learn from experience, continuously improve your strategies, and remember to maintain a balanced life. Trading is just one part of life, not everything. (That's all for now before we go.)