Cryptocurrency is one of the riskiest asset classes in existence, especially given its inherent price fluctuation. The value of your cryptographic assets is constantly prone to sharp market fluctuations, with the potential to make or break you at any moment. Thus, the question arises, "How do I prevent losing money in cryptocurrency trading and investment?"
Since the launch of the first cryptocurrency, Bitcoin (BTC), in late 2008 and the subsequent emergence of other cryptocurrencies, there have been numerous cycles of growth and decline, even within the more extensive long-term trends known as bull and bear markets.
Like any other investment or trading instrument such as stocks, currencies, and so on, the crypto market is bound to experience significant drops and rises over time. The negative side is always intolerable for investors, even though both positive and negative circumstances are supposed to be viewed as typical components of investment. As a result, many critics speak negatively about the industry, forgetting that this is also true for other types of investments.
In this article, we'll go over a few strategies you can employ when trading and investing in cryptocurrencies to safeguard the value of your portfolio or wallet, avoid trading out of emotion, get a better night's sleep, and relax when others are tense.
5 ways to avoid losing money in crypto trading and investment
Always conduct quality research.
Don't be swayed by FOMO (Fear Of Missing Out) and FUD (Fear, Uncertainty and Doubt).
Never invest more than you can afford to lose.
Don’t put all your eggs in one basket; diversify your portfolio.
Have long-term thinking
An in-depth look at how to avoid crypto investment losses
Always conduct quality research
Many individuals lack a strategic plan and attempt to outsmart the market by making disorderly choices as they trade or invest. But as you might already have guessed, they only succeed in losing money.
Do not always base your decisions on what you hear from influencers, project promoters, or the so-caled “experts”. Always DYOR (Do Your Own Research) and thoroughly examine any project you are considering investing in.
Essentially, you must develop a successful strategy on your own, as the cryptocurrency market is quite volatile and your research may occasionally not be right. As a result, it takes a lot of time to properly understand how it operates, and you must be ready to learn, re-learn, and unlearn.
Don't be swayed by FOMO and FUD
While staying up-to-date on news and developments in the cryptocurrency industry is a good idea, sometimes consuming too much information can be deceptive and result in unwise decisions. This is particularly true during a bull market, when everybody is cheerful and ready to invest in any "trendy" coins that come their way.
A common phrase in the cryptocurrency investing world is "FOMO," or "Fear Of Missing Out," which refers to making an irrational decision to buy or trade a cryptocurrency based on what others say or what you see the majority of people doing without doing your due diligence.
FUD (Fear, Uncertainty, and Doubt) is a negative market feeling triggered by a rumor, a negative news story, or a well-known individual voicing concerns about a particular market or asset. This could also greatly influence your trading decisions. So, you have to separate your emotion from the market.
Never invest more than you can afford to lose
Most of us have heard stories about people investing their entire life savings in one particular investment, only to see their investments lose value over time until their money touches the ground. You should never invest more money than you can afford to lose, regardless of how confident you are in a particular cryptocurrency asset. Make it a point to only invest a small sum at a time.
You could also use what they call "the dollar-cost average" as a strategy. Instead of making erratic or large crypto purchases all at once, this process involves making regular, equal-sized purchases (possibly monthly or bimonthly).
Don’t put all your eggs in one basket; diversify your portfolio
One of the biggest mistakes new traders make is putting all of their available money into a single trade or crypto asset because they have excessive "trust" in it. You don't want to get caught doing this, regardless of how confident you are in that specific asset.
As each trade invariably involves a risk, it‘s purely a numbers game in terms of how much of your capital you should commit each time. More money invested in a single trade can quickly result in a significant decrease in the trading capital as a whole. That‘s what mostly tends to happen to beginners, but experienced traders don‘t do so.
Essentially, instead of choosing a single cryptocurrency asset and pouring all of your money into it, choose a few cryptocurrency assets that align with your instincts and feel right (based on your research).
Have long-term thinking
Negative market conditions make it difficult for traders and investors to remain calm, but that is exactly the time for investors to concentrate on the long-term opportunity in the cryptocurrency market.
Holding your coins for long periods of time has proven to be a successful strategy, with Bitcoin and many other leading cryptocurrencies bouncing back after a series of collapses. This demonstrates that the sector is here to stay and that the temporary drop in cryptocurrency prices shouldn't get in the way or be a source of discouragement.
In fact, the only time unrealized losses are realized is when the assets are sold for less than they were purchased for.
Closing thoughts
If you know where to look, there are opportunities even when the cryptocurrency markets are declining. Smart investors see a new window of opportunity to purchase their preferred assets at a discount and make a profit where others see a cold and gloomy crypto winter.
This is similar to the course of action taken by Changpeng Zhao, also known as "CZ," the CEO and founder of Binance, the largest cryptocurrency exchange in the world. His company keeps enduring the current market condition, purchasing more companies, and "building," as he puts it.
Investments in cryptocurrencies are undoubtedly very risky, but seasoned traders and investors have strategies for minimizing the risks, particularly when a downturn happens. The points covered above, however, are a few methods you can use to prevent losing money on your cryptocurrency investments.
