Investors from all over the world are trying to capitalize on the volatile Forex market by trading the cryptocurrency Bitcoin. Well, it is quite easy to start trading online, but it is important for you to know that there are risks that you cannot ignore.
As with any speculative or stock market, Bitcoin trading is also a risky venture that can cost you a lot of money, especially if you don’t do it right. Therefore, it is important for you to know about the risks involved before you decide to start with it.
If you are new and interested in Bitcoin trading, you need to first understand the basics of trading and investing.
Avoid Common Mistakes New Traders Commonly Make
Any financial investment can bring losses, not profits. Likewise, with the highly volatile Bitcoin market, you can expect both profits and losses. It’s all about making the right decisions at the right time.
Most beginners tend to lose money by making bad decisions, which are usually driven by greed and poor analytical skills. Experts say that you should not venture into trading unless you are prepared to lose money. Basically, this approach helps you mentally cope with worst-case scenarios.
Diversify your portfolio
First, successful traders diversify their portfolios. Risk increases when most of your funds are spread over one asset. It becomes more difficult for you to cover losses with other assets. You cannot afford to lose more money than you put in, so avoid placing more funds in limited assets. This will go a long way in helping you withstand negative trades.
Second, investing more money than you can afford will also cloud your ability to make smart decisions. In most cases, you will be forced to opt for “desperate selling” if the market drops a bit. Instead of weathering a market downturn, an overinvested investor is bound to panic. A person will feel the urge to sell the holding at a low price in an attempt to reduce losses.
You will also lose more money when the market recovers. This is because you will have to buy the same thing but at a higher price.
Set goals – emotions make you blind
Setting a goal for each transaction is very important when you are trading bitcoins. This helps you stay balanced even in very volatile conditions. Therefore, you will need to determine the price first to stop the loss.
The same rule applies to profit, especially if you let your greed get the better of you. The benefit of setting goals is that you can easily prevent yourself from making decisions based on emotions.
Instead, you should work on improving your chart reading and market analysis skills. New traders are also advised to close their losing positions within 24 hours to avoid recurring interest payments.