Trading in traditional markets with checks in place to ensure new investors are experienced enough to trade and understand the risks is not an element of the crypto markets. Even gambling sites have automated systems that stop users from losing too much money. These efforts are regulated by the government to protect consumers. Again, there is no such protection for consumers in the crypto space, hence one reason for the “wild west” tagline – it is easy to lose money and there is no safety net.
Traders in the crypto market are 100% responsible for their own actions, and despite the warnings, many fail to realize the depth of its speculative nature. While there is ample opportunity to make money, the majority of investors will lose money because they fail to fully understand that 100% responsibility clause or they start their involvement with a losing strategy from day one. In a highly volatile market that is decentralized, unregulated, manipulated, and highly unstable – traders must be hyper-vigilant of the perils, both personal and technical, in order to reap the rewards.
Tales of Woe
There is no shortage of testimonials of loss online and many have the same common denominators:
- Invested because everyone was making money – lots of money
- Invested money they could not afford to lose
- Moved other investments into cryptocurrency
- Invested in altcoins they were told would be the “next bitcoin” or change the world
- Invested in ICOs that failed or completely disappeared
- Invested in high-risk trading platforms promising unrealistic returns
- Panic sold at a loss when prices dropped
- Traded to try and recover losses only to lose more
In all honesty, everyone who has traded cryptocurrency has hit more than a few of the items on this list. Some learned from their mistakes, others compounded their mistakes and lost even more. It just goes to show that most people should not be trading, they should be investing. The difference is to buy assets and hold them for months or years, and do not concern yourself with the daily price. Some amateurs did very well during the massive 2017 bull run, only to lose it all and sometimes more when the bear market cycle took hold.
Rules of the Wild West
Prices go up based on supply and demand, but there are whales manipulating the market and they are there to make money off amateurs who make mistakes. When there are more buyers than sellers, demand has outpaced supply, the price goes up, more people FOMO, and new buyers come in. When the price is pushed to the point where you have made a profit – take those profits. Savvy traders certainly will, and when they do, the prices start to fall because the supply grows. This all happens at warp speed as far as you’re concerned, but the whales are in control and they are patient with deep pockets. They can pump or dump the price leaving you holding the bag and wondering what to do next. They play on the emotions of fear and greed.
Do not invest more than you can afford to lose. Let that sink in – lose, as in gone for good.
Remember that the crypto market can drop to levels that would trigger a global depression if it happened in the stock market. Crypto can drop 25% and then rally 50% in less than a week or even a day, so the risk is high and it is crazy. When it is time to take a profit – sell your crypto assets for fiat. Until you sell, you have not realized a profit no matter how much your portfolio is worth.
Do not think of your investment as a “get rich quick” deal – it isn’t.
The crypto market and ecosystem are becoming more advanced, new utilities and services are surfacing, more big players are getting interested – but this is still a speculative market. Approach it like that and you can find success. Come in thinking this is a winning lottery ticket and you’ll likely lose. Your investment should be made with long-term goals. Those who invested in Dec 2013 who did not panic sell during the crash waiting until 2017 and made huge profits. You can bet that as bitcoin approached all-time highs, this time they did sell and take profits. They profited most off newbies flocking in to buy at all-time highs.
If you cannot dedicate yourself to being a trader, you are not a trader.
If you have a job or raising kids is your job, then you are not a trader. You will neglect your job and your family, possibly your health and your life, not to mention your hard earned money and savings. Day trading is not easy – it is very hard and one must be glued to the markets and news, following trends and using technical analysis tools 24/7 because this market never closes. There is never a break for day traders and the stress is a killer. Best to invest in speculative cryptocurrency and hold your positions through the upward waves. You do not need to day trade.
Pay attention to security.
Honestly, there is nothing worse than learning to trade, making some profitable trades, not getting greedy and taking profits by reasonably exiting your trades – only to log in to your exchange one day and learn it has been shut down by the SEC (Securities and Exchanges Commission). This has happened more than once to several exchanges or trading platforms. Well, maybe there is something worse…that would be to have your hard traded profits stolen because you clicked a link in a spam email. Or you didn’t set up two-factor authentication on the exchange and some bot hacker gained access and stole all your bitcoin. Take security very seriously because hackers most certainly do.
This is a high-risk, high-reward space for traders, but it isn’t for everyone. If it isn’t for you, check out articles in the Investing category. There is no shame in admitting one’s limitations and profiting as a result. If you do feel it is for you, and you have money you can afford to lose, then do your own research, read and learn things before you make a trade. If your investment grows, take profits and diversify.