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Whether you’re a beginner or a veteran of the crypto world, you’ve had some losses at one time or another. This is part and parcel of the learning process, but what if you could learn without suffering significant losses? Let’s take a look at some of the worst advice in crypto as an example of what not to do when trading cryptocurrency and other blockchain assets.
Buy The Top
Buying the top, or buying a coin when it is at its at ATH (all-time high), is a classic mistake, sure to result in a loss. This can happen if you watch prices pump and experience FOMO (fear of missing out), or if you’re convinced by others – who probably already hold the coin- to buy too. When the price crashes, your losses can reach 30 to 40% easily, if not more. Sure, you may not know what the top is, but any competent investment advice would prioritize not losing your money over trying to make money.
To recover from this mistake, there are a few things you can do:
- Open up the coin’s financial charts on an exchange like WazirX,
- Ascertain whether or not the current pump is sustainable or not. If the price curve is parabolic in shape, there is little chance that the growth was natural, and it is unlikely that the coin will reach ATH again.
- In the case of linear price growth, there may still be hope of minimizing your losses and maybe even turning a profit. All you need to do is wait and check the charts until you find an acceptable price to sell at.
All this is super-simplified, of course. To truly understand charts, you may need to head to the WazirX blog and read up on its posts around technical analysis in crypto.
Buying Micro-cap Coins
A rookie mistake is buying a coin simply because it is super cheap or endorsed by an individual or group. Most coins that fall in this category have either no use case or a very limited use case, or best case scenario – are yet to prove their potential. Check a coin’s market cap instead of its token price to avoid making this mistake. This is because it is the market cap that determines how much a crypto can pump its price.
If you’re not sure how to check how much potential a crypto has in terms of growth, check other coins that are in the same coin category and compare their daily traded volumes, market cap, and online engagement to see where it stands.
Buying A Coin Because Of Endorsements
You should never invest in a cryptocurrency simply because it is being promoted by a public figure. It is very likely that they own a large share of the market supply. If enough people buy a coin they shill, the public figure can decide to sell their coins and make a tidy profit, leaving regular investors deep in loss.
Avoid all coins shilled by famous people since high quality coins don’t need advertising to perform well. Reading a coin’s whitepaper before buying it is a good idea, and it prevents you from falling prey to any scams that may occur.
Buying A Coin Because of Social Media
Social media sites such as Reddit, Twitter, and Instagram are full of pages shilling for coins you’ve probably never even heard of or coins with terrible use cases. They often talk about prices ‘going to the moon’ if you just hold long enough. Keep in mind that everyone who shills for a certain coin is either paid by the developers or has invested too much time and money in the project, resulting in them being biased heavily in its favor.
To prevent getting blinded by the hype on social media, it is important to DYOR or Do Your Own Research. Doing your own research is a surefire way of knowing whether or not the coin has future potential or is a scam being used to lure beginners.
Sell Because A Market Crash Is Coming
This is a mistake that even experienced traders can fall prey to on occasions. Fears of a market crash are a constant in both the equity and the crypto ecosystem. What people often forget is that a market crash is never permanent. A crash is followed by a pump; sooner or later. In this case, the best solution is to just hold. Or at least, not sell the bottom.
As we all know, the market is unpredictable. In February, there were fears of a massive crash due to the Russian invasion of Ukraine. The next day, these fears turned out to be in vain since the markets actually went up instead of down.
Go All In
The absolutely worst mistake one can make is not diversifying their portfolio and investing all their funds in a singular coin. While it works once in a blue moon, more often than not, it is a terrible idea. A large investment in any single coin is a big risk, as even a small dip can wipe out a large percentage of your profits.
The only way to prevent this is by diversifying your portfolio. Diversification of your crypto portfolio is a smart move and will help minimize your losses in case one crypto goes down.
After going through this list of “things not to do when investing in crypto”, hopefully, you are a bit more aware of some of the common mistakes a crypto trader can make, no matter how long they have been trading. Armed with this information, what coin are you thinking of investing in next?Disclaimer: Cryptocurrency is not a legal tender and is currently unregulated. Kindly ensure that you undertake sufficient risk assessment when trading cryptocurrencies as they are often subject to high price volatility. The information provided in this section doesn't represent any investment advice or WazirX's official position. WazirX reserves the right in its sole discretion to amend or change this blog post at any time and for any reasons without prior notice.