Bitcoin has encouraged many people to take an interest in finance and it has allowed easy access to financial exchanges. This has led to a big number of people who are trying to trade in Bitcoin, without any past trading experience. Therefore, majority of these newbie traders make simple mistakes that could be easily avoided with a basic comprehension about investing and trading. This article will look at the most common mistakes that new traders make and propose tips on how to avoid them:
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1. Invest an amount only that-you can afford to lose
All financial investments can either produce losses or profits. Bitcoin is a highly speculative investment, and any investor can experience either large losses or gains. When trading with Bitcoin, it is easy to lose money through poor decision-making.
You should only invest an amount that you will still feel comfortable even if you lose it all. Be always prepared for that eventuality. There are two reasons for this.
i. Successful investors always diversify their portfolio. Putting too many resources to an asset class increases the level of risk exposure. This makes it difficult for the gains in other assets to compensate for the loss of another asset.
ii. Investing an amount only that you can afford to lose reduces your ability to make the right decisions. Specifically, there is he risk of ‘panic selling’ when the market declines by a slight percentage. If you are over-invested, you won’t hold on throughout the market dip. Instead, you will panic and sell-off your shares for a lower price in a bid to cut your losses. This tends to lead you to lose more funds when the market finally recovers and you end up buying it back at an even higher price.
2. Set Goals for each Trade
Goal setting is important to traders as it helps to remain level-headed in the times of extreme volatility. This applies for Bitcoin trading. When you are placing a trade, you must determine the price to take profits and the price to cut losses in advance. The advantage of goal setting is that it prevents the making of decisions based purely on emotions. For instance, a trader who has no target price may make a profitable trade, get greedy, and then fail to get their profits when the market is still on their side.
The setting of goals or price targets can prevent traders from becoming despondent after a market crash and greedy when experiencing euphoria.
3. Learn to Study Charts
Technical analysis is a hard skill to develop. Nonetheless, new traders must know the basics of reading a chart to point out the market trends. The most extensively used Bitcoin charting tool is Bitcoin Wisdom.
4. Never set stop losses too low
A stop loss refers to the automatic trigger to liquidate your position if your losses drop down to a certain value. This helps in stopping the losses so that you cannot lose anymore. They are tools that each trader should take advantage of.
5. Close leveraged and unprofitable positions within 24 hours
Leverage refers to the lending or borrowing an asset in the hope that it depreciates or appreciates. The Bitcoin market is very volatile and it can be very difficult to make a profit when the price is predisposed to change direction quickly.