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An expert is one who has made all the mistakes in his specialization. But it is better to learn from the mistakes of others. After all, mistakes when investing in cryptocurrency can cost all investments.
Let’s take a look at the most common mistakes in this article.
1. Trying to make money on “insiders”
If a project is talked about from all social networks, then this, as a rule, is already the final stage of the project and all the information is already included in its price. It must be understood that the information that an ordinary crypto trader receives is not insider information, because this crypto trader is at the end of the chain of investors who received this information earlier and used it. This chain looks like this:
Project developers – project insiders – funds financing the project – large investors – media representatives promoting the project – retail investors.
Therefore, you should not recklessly buy a coin, just because somewhere on social networks, supposedly, insider information about a particular coin has appeared. It is always necessary to conduct an independent analysis of coins.
2. Do not take into account the price at which large funds entered the project
Venture capital enters projects at early stages at prices 10-100 times cheaper than a retail investor can enter. It is always necessary to pay attention to the prices at which large funds entered the project and the period for unlocking their investments. After all, if they decide to exit the project or sell part of the coins, they will bring down the price due to their volume.
This information is available on DropsTab, where you can select the coin of interest in the Fundrasing section.
This is not to say that you should avoid projects where large funds have entered. As a rule, funds help the project with early financing, dissemination of information about it in order to significantly increase its value in the future.
For example, the SOL coin was bought by funds for $0.25, and now it costs more than $130.
There are no specific criteria for the analysis of funds. Qualitative analysis can be carried out on the basis of accumulated experience and, to some extent, intuition.
3. Chasing windfall profits
A yield of 25,000% looks very tempting. But it should be understood that high returns come with high risks. Almost all the stories that started with grandiose returns ended with no less grandiose falls. Don’t take high risks.
Often, a 19.5% return on staking stablecoins is more profitable than trying to catch high-yield projects.
4. Invest in empty projects
There are projects that are fraudulent, or are financial pyramids. It is always necessary to study what value this or that project carries. It is necessary to study the history of the project and prices in order to understand at what stage the investor is and whether the current assessment of the project corresponds to the proposed product, and whether this project has a product at all.
Even if an investor decides to enter such a project, it is better to do it at an early stage and withdraw profit from it.
5. Do not take profit
This is a continuation of the previous error. It is necessary to fix the profit. In order for emotions not to prevail, you need to have a pre-thought-out profit-taking plan. Having a plan will help you soberly see the picture and act without succumbing to emotions.
There is a definition that the money in the market is the money of the market. An investor’s money is what he has withdrawn from the market and spent.
6. Ignore new trends
There have been a lot of trend changes in the cryptocurrency markets lately:
• Axie → STEPN
• DOGE → Shiba Inu
• ETH → Solana / Luna / Avalanche
• Cryptopunks → Bored Ape Yacht Club
Those who invest in new trends and directions in time earn money in this market.
7. Don’t follow microtrends
Microtrends change quite often in the crypto market. You should not direct your attention to only one coin or niche. The market is changing, and being able to recognize small changes in time that can lead to the emergence of new directions is a big advantage.
8 Ignore “slips”
When exchanging cryptocurrencies on decentralized exchanges (DEX), investors often overpay up to 20% of the cost due to slippage of their order. As a rule, slippage is observed in markets with low liquidity, in very volatile coins, with small trading volumes.
On the DEX, it is possible to manually set the amount of possible price slippage. On Pancake, the default slippage is 0.5%. Accordingly, an investor, having paid $100 for a token, will receive it for $99.5.
9 Ignore non-permanent losses
Intermittent losses occur when an investor farms 2 tokens in a liquidity pair (LP) such as BNB-CAKE.
Those investors who are engaged in such farming will benefit from a non-permanent loss calculator.
Managing fickle losses can save an investor thousands of dollars.
10. Not navigating the phases of the market
The cryptocurrency market, like regular exchange markets, has periods of growth, accumulation and decline. During periods of recession, it is preferable to hold funds in stablecoins, and during periods of growth, move the balance towards more risky investments.
There are various indicators that can be useful in determining the current phase of the market:
• time before halving
• alt season and bitcoin market share
• fear index
• capitalization of the crypto market
11. Unconditionally trust software solutions / robots
Trading automation solutions or trading robots do not guarantee income. They may stop working, they may be hacked, the algorithm of such a system may not take into account changes in the markets. Even when using robots in your trading, you need to control their work.
12. Have an overweight in the portfolio in favor of aggressive coins
Do not overload the portfolio with high-risk coins that have multiple growth potential. Since in the event of their fall, the portfolio will sag significantly. It is necessary to strike a balance between aggressive investments, “blue chips” among cryptocurrencies and stablecoins.
You should also consider dividing the portfolio into two components – separately for medium-term and long-term investments and separately for daily, short-term trading.
13. Over-diversifying your portfolio
Do not overload the portfolio with assets. It is difficult and time consuming to keep track of many coins effectively, their changes are difficult and time consuming. It seems optimal to have 7-12 different assets in the portfolio.
14. Diversifying your portfolio is not enough
The other extreme is not to diversify the portfolio at all and invest all the funds in one or more coins. It is considered optimal to invest no more than 15% of the portfolio in one asset.
15. Do not close losing positions
Holding a position, by all means, in the hope of a coin growth is dangerous. If the position went against the initial forecasts and plan, it is necessary to understand the reasons for this. And you need to have a pre-prepared plan in case the price moves against the position. Locking in a 25% loss is much better than losing 90%.
16. Trust public figures
Public figures can promote and advertise this or that coin or project while they themselves will not be included in them. Publicity and the presence of a wide audience do not guarantee expertise, honesty. Any decision to invest in a particular project is the full responsibility of the investor. He must make a decision based on his own analysis of the project or coin.
17. Ignore the marketing component of the project
The project can be very good and reliable. But if a large number of people do not know about it, then money will not come to it, the ion will not develop. Marketing is very important. If the project does not pay due attention to marketing, it is likely that the expectations of its growth in value are too high.
The crypto market allows you to make money on it, mainly for those who approach investments consciously, follow financial plans and do not give in to emotions when trading or investing in various projects. Recommendations for investors and traders can be summarized in three main points:
– think about the safety of your investments;
– remember that you do not own all the information;
— trust no one unconditionally.
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