Avoid These 3 Crypto Mistakes
Cryptos are some of the most volatile investments. They have swings of 20% to 30%, sometimes on a weekly basis.
So, if you’re a newbie in the crypto space, it’s essential that you have the right game plan — or else, you can quickly rack up substantial losses.
In today’s Market Insights video, Steve Fernandez and I discuss three common mistakes to avoid when you buy or sell cryptos.
(If you’d prefer to read a transcript, click here.)
Ian King: Hey everyone. Ian King here with your Smart Profits Daily weekly update. And joining me is my friend Steve Fernandez.
Steve, we’re going to share with our followers this week the three most common mistakes that new cryptocurrency traders make.
#1 Dont Know How To Position Size
I’m going to start with No. 1. The most common mistake I see from newbie cryptocurrency traders is that they don’t know how to position size.
Cryptocurrency is a very volatile market. It has swings of 20% to 30%, sometimes on a weekly basis. And if you’re position sizing too much, you’re going to get shaken out of these markets.
So, I always say don’t put more than 5% to 10% of your total investment allocations in cryptocurrency, because if you add too much, if you’re carrying heavy bags, it usually shakes you out at the bottom because the cryptocurrency markets, like I said, are very volatile.
So, in any market, when you’re speculating, position sizing is key.
If you read some of the great books about speculating, the best traders out there don’t put more than 3% of their capital in any position at all. I think that’s a great rule to live by.
So, the No. 1 rule of cryptocurrency trading is keep an eye on your position size. Steve, what’s the second most common mistake that cryptocurrency traders make?
#2 Buy and Sell at the Worst Time
Steve Fernandez: Well, sometimes they buy and sell at the worst times.
Crypto is a very psychologically driven market. There aren’t financial statements or anything like that. So, the trading really comes down to technicals a lot of the time.
So, you shouldn’t ignore the support and resistance levels — basically, where we’re seeing a lot of selling pressure or a lot of buying pressure.
Crypto traders should be looking to buy when there’s a demand zone where buyers are stepping up to buy. And they should be looking to sell where sellers are looking to sell as well.
Ignoring those levels can be really costly. And there are definitely ways to develop a trading strategy around technical analysis. That’s something we pay a lot of attention to as well.
But what did you have in mind for the third mistake to avoid?
Ian: I’ll tell you in 30 seconds, but I do have a funny story about that.
I have a friend — you might have heard of him. My friend Jordan in 2017 bought bitcoin seven times during its meteoric run from $1,000 to $20,000.
He was down on the year in bitcoin because he didn’t look at support and resistance.
He would just say, oh, bitcoin is up again, I’m going to buy some. And a couple of weeks later, he’d be down 20% or 30%, and then he was selling.
So, that’s why support and resistance are so key.
#3 Try Whatever’s Hot That Week
And lastly, the No. 3 mistake that newbie cryptocurrency traders make is they just go and try to buy whatever is hot that week.
Sometimes that can be Dogecoin or Shiba Inu coin or any of these speculative coins that don’t really have any real-world value and don’t have any use cases.
If you’re going to take a flyer on one of them every once in a while with a little bit of capital, that’s OK.
But your core holdings in your portfolio, the ones you’ve invested in that are going to be there 10 years from now, should be the ones where you’re seeing real adoption, real-world use cases in decentralized finance or decentralized digital storage.
Those are the types of cryptocurrencies you want to focus on, not the ones that somebody tells you about at the gym, you know, after it’s already gone up 10X because the pump is already there, and you’re getting in just for the dump.
So, you’ve got to be really careful about those. And, Steve, have you ever made that mistake before? I’m sure as a newbie trader years ago you made a couple of mistakes like that in the past.
Steve: Yeah. I mean, I was fresh out of college back in 2016. And 2017 was when the last real crypto bull run was going on.
It’s really tempting sometimes, with not that much experience, to jump into a trade that only seems to go higher. And like you explained earlier, if you don’t position size correctly, you can make a really bad decision on when to exit as well.
Everyone makes mistakes at some point. So, look to avoid these three mistakes, for sure.
Ian: Right. And nobody’s perfect. Everybody makes mistakes. What’s important is that we learn from those mistakes and make ourselves better traders and better investors.
Steve, thanks for joining me this week. For all of you out there, thanks for tuning in.
I’m Ian King. For myself and Steve Fernandez, have a great weekend, and we’ll speak to you next time. Thank you.
Editor, Strategic Fortunes
My career on Wall Street started while I was in college. I spent a summer interning for Merrill Lynch in the middle of the ‘90s bull market. I was fascinated with trading, and as a result, after college, I joined Salomon Brothers in the famed mortgage bond trading department. Later, I spent time at Citigroup working with credit derivatives. Eventually, I needed to walk away from the excess of Wall Street. That’s when I joined Banyan Hill in 2017. Now I help readers get ahead of the market and build their retirements.