Bitcoin was created in 2009 and inspired the emergence of many other cryptocurrencies following the global financial crisis and the subsequent fallout. Unlike ordinary currency, Bitcoin is created, distributed, traded, and stored using a decentralized ledger system, otherwise known as a blockchain. Thanks to Bitcoin, cryptocurrency has become a popular trading method for those who want to engage with new forms of finance. Our online lives have become increasingly intertwined with consumerism and major global companies. Although Bitcoin is often seen as an easy way to trade, there are actually more fluctuations in prices than traditional exchange trading. Becoming a successful Bitcoin trader is a longer and more complicated road than most people think it is!
So keeping that in mind, what are common mistakes to avoid when starting to trade Bitcoin?
Despite popular rhetoric, you do need to be well read on the world of cryptocurrencies to safely trade Bitcoin. Along with reading up on its history and how it works on a basic level, you need to know which platforms to use, how your chosen broker platform works in detail, how to spot a losing or winning trade, and how orders are executed. You should invest your time in learning about technical analysis, as this will aid you in identifying patterns later on when you want to start making a profit.
Using too much leverage
A big mistake many beginner traders make is using leverage. Leverage is the use of debt (borrowed capital) in order to undertake an investment or trade, with the aim of multiplying potential returns from the project. At the same time, leverage will also multiply the potential downside risk in case the investment does not pan out. When you are starting out with not much capital to trade with, this can have major consequences. Leverage is recommended only for advanced traders who have been consistently profitable for years. Investors who are not ready or experienced enough in using leverage themselves have a variety of ways to access leverage indirectly. Many Bitcoin enthusiasts turn to crypto brokers for trading on leverage.
Lacking a Strategy
To successfully trade Bitcoin, you need a strategy which is based on many factors. You should consider how much time you can commit and what you want to get out of trading. Another major strategy factor is whether or not you intend your bitcoin trading to be a short or long term investment.
Many users make the mistake of not sticking to their predefined strategy. Emotions and impulse often take over and cause people to make mistakes or trade impulsively. Make sure you implement a stop loss, meaning you have a concrete point of no return on a loss. If you keep going with a losing trade, you will just lose more money and become even more frustrated with your situation.
You may be tempted to get in on a hot coin or join a very promising trade. Experienced traders know when to get out of a trade when it becomes too popular. Ignore the ‘trade prophets’ on Twitter who seek to manipulate trades by announcing sure bets. Stick to your strategy and ignore those who encourage mass movement to certain trades.
Trading out of despair
Many see Bitcoin as an easy way to earn money fast. It is never a good idea to jump into a new financial venture when you are desperately in need of money, as you are more likely to make rash decisions. You may lose money that you need for a living, or lose borrowed money which could potentially put you into a dangerous financial situation. At the beginning of your Bitcoin adventure, there is absolutely no need to trade with real money. There are endless resources and platforms for paper trading. At least spend three months in paper trading before you commit your hard-earned cash to Bitcoin trading. Keep a trading journal where you can record each trade, and hopefully find patterns to match up with your strategy.
With all of this in mind, it is absolutely essential to take some time before diving into the world of cryptocurrencies to consider what you want to get out of it. Are you looking to make a quick buck or are you investing for the future? Bitcoin is definitely not a ‘get rich quick’ scheme, and ultimately it should be approached with caution and knowledge. There is no easy route to bypass all of the hard work which experienced traders have put in to eventually become successful and make a profit. If you are dedicated and committed to pursuing a new financial direction online, and you are willing to put in research and time, Bitcoin might become your new best friend! With some dedication and commitment, your chosen trading path could lead to major achievements. Keep the above beginner mistakes in mind and you’re on your way to a successful trade!