Common Mistakes That You Should Avoid While Investing In Crypto- Part 2
In Part 1 of this series, we monitored the crypto journey of a beginner and listed down what are the common mistakes one makes regarding first purchases and fundamental analysis. We also discussed how not to get scammed and evaluated the risks of keeping crypto in exchanges. In this part 2, we will discuss few more important topics
1. Understanding Orderbooks: You must understand order books. It is not necessary that you need to buy or sell at market price. You decide the price you want to buy or sell. This provides you two very important tools
a. Stop Loss: Stop Loss allows you to automatically sell your crypto in case it falls by a certain amount. Stop-loss ensures that you do not suffer any subsequent loss. In crypto normally we see huge plunges and there is a high chance that the price falls further. You can always buy your crypto back.
b. Take Profit: Trying to sell at All-Time High is not possible. You need to create a strategy when to sell a certain percentage of your crypto if it crosses a certain price. Put sales orders at various profit levels. This will also ensure that in case of corrections, you can get back in with the profit amount. The world still works on Fiat and it would be good to be disciplined. Using crypto habits for your daily needs is a good habit.
2. Getting emotionally attached to a particular project: Only a very few projects will survive in the long run. Hence getting emotionally attached to projects is risky. Accumulate only those projects which are building and showing progress. Learn to let go.
3. FOMO: Never FOMO into a particular project. Understand that by the time you are FOMOing in, the price has already risen, the whales have achieved what they wanted and they are ready to dump. Always try to buy a particular project during corrections. In case you miss out, there will always be a second chance, else, you will always have other good projects to invest in.
4. Leverage trading: Leverage trading is for Professionals. The crypto market is driven by whales and is extremely manipulative. Price movements defy logic. If you have high leverage, a small movement in the opposite direction might lead to loss. Use Stop loss.
5. Taxes: Pay your taxes. Even if your government has not regulated cryptocurrencies, you should consult a tax specialist and follow a defined tax filing process. The government is always monitoring them, do not take them for granted.
6. Lack of education: Blockchain gives you various opportunities to try out. Educate yourself before you try them
a. Yield Farming: Before you start yield farming, educate yourself about Impermanent loss. While you are gaining the governance tokens of the yield farming protocol, you might be losing a substantial amount of the underlying collateral of the LP Token. You might never get enough time to recover that back again.
b. Not all NFTs are not worth the price: The concept of NFTs is slowly evolving. They are becoming more generative and responsive. In such a case the old JPG artworks are being less valued. True artists can differentiate themselves from others. Do not buy everything cheap, you might never be able to sell them again.
7. Passive Income: Make your crypto work. While your crypto might increase in value, you also have the opportunity to be rewarded in other ways like Staking. Participating in crowd loans (Polkadot), etc. Such passive income adds up to a lot of amounts. Good projects allow you to stake directly from your Hardware wallet (Ledger). This is one area to explore for safe staking.
You might still make mistakes. Each mistake might be of a new type. Do not worry, try again. The crypto ecosystem always gives you a second chance.
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FOMO is definitely a tough one. I always get so much FOMO and have made some stupid mistakes from it.
Experience is the best teacher and I tend to control it a little better each time.
Crypto is a roller coaster ride.
Thanks for the reminders and pointers. It can be easy to feel overwhelmed with the many traps to fall in to, but thankfully there are so many knowledgeable and generous people in the space willing to answer questions and help out, making the journey feel less daunting.