Mistakes to avoid when Investing❌
Discover the mistakes to avoid at all costs to manage your portfolio more effectively!
6 min read
When we invest our money in a financial asset, we can become emotionally involved, and this can lead us to make mistakes. They can also be made because of a lack of organization in the strategy. These examples of what not to do are valid for the cryptocurrency market, equities, metals, and so on. And it doesn't matter whether you're a long-term investor or a trader.
Let's get started!
Invest all your funds at once:
Whether you buy your cryptos with leverage or not, by investing all your available liquidity at once, your portfolio will be heavily impacted by market movements, and your risk will have to be kept in check. What's more, you won't be able to buy back cryptos if the price falls, and your capital will be locked in, unless you sell at a loss.
Of course, you can invest everything at once just before a very nice rise, but the aim is to be able to minimize risk in all circumstances and invest rationally. The DCA strategy is a very good alternative, especially for beginners. It enables you to smooth out the purchase price of your cryptos!
Being too emotionally involved in the market:
By having feelings about the market and your crypto bags, you're going to be led to make a good number of mistakes (I've paid the price). The first thing is not to FOMO, which can be related to the first point: you expose yourself 100% to the market very quickly because you're convinced that it's the best time to buy. But most violent rises are retraced, and the patience of doing a DCA over the long term will be more fruitful. Prepare a pre-plan to be applied in every possible scenario, so that you can adapt and don't have to sell in a panic if the price falls violently, and conversely, don't fall into the trap of buying a crypto after a string of bullish candles.
Do not take profit:
It's also a mistake we can make when we're too influenced by the market. If you see the price of your crypto climbing day by day, you might become far too confident and let your guard down, satisfied that it won't stop tomorrow. But then again, the price never rises continuously indefinitely. Unless your strategy is to accumulate Bitcoins over a decade or more and never sell, taking profits is paramount in futures and spots if you apply a cycle strategy. It's very difficult to see all your profits melt away, and even to go into a loss when a few weeks earlier you'd never have imagined it. Many investors have seen their portfolios explode, only to be worthless a few months later.
In periods of euphoria, when everything is exploding upwards, taking profits in stages is advisable. The best way not to be influenced is to place sell orders at the various bullish targets so that they can be executed automatically. If you don't do this, try placing a stop loss and raising it as the price rises. You'll automatically sell if the price corrects violently, but you'll inevitably come out positive, and that's the main thing.
Do not set a Stop Loss :
Not taking profits is a mistake, but so is not cutting your trades into losses. Again, this is said in general terms and it's up to you to implement your investment strategy. However, getting into a crypto with or without leverage, and not setting a stop loss to automatically close your trades at a certain loss level could cost you dearly.
When you buy an asset, you need to measure your risk: how much you can potentially gain versus how much you can potentially lose. If you bet upwards with a target of +10%, but don't set a stop loss and the price falls, you could lose more than you could win, and trading this way won't be profitable in the long term.
Moreover, placing an automatic sell order allows you to invest more serenely: you know how much you can lose, so you won't have any nasty surprises. And you won't have to monitor your crypto's price all day long.
Putting all your eggs in one basket:
Most investors are familiar with this saying, and it's not hard to understand that not allocating 100% of your portfolio to a single asset will lower your risk. On the crypto market, the context is rather particular, as its entirety is highly correlated to Bitcoin; in general, if it falls, all the altcoins will follow. But in a bullish cycle, it's still advisable not to concentrate on just one project, but rather to choose a dozen or so. Building up your portfolio with large-cap projects such as Bitcoin and Ethereum is a good way of investing prudently, and you can then buy a few mid-cap cryptos that are still in the top 100. This kind of project has more growth potential than the top 10. And finally, you can buy small-cap cryptos, which are the riskiest but also the ones that can deliver the best performance.
Spreading your liquidity over different assets will also enable you to manage your money better. When a crypto is performing well, selling a few units to buy one that is falling that day can be a good idea.
When we talk about diversification, we're not just talking about cryptos. You can very well own cryptos, and at the same time carry out a DCA on equities, precious metals etc... The more you broaden your investment sectors, the more your risk will decrease, because generally speaking (and without the context of a recession), not everything falls at the same time.
Diversifying too much:
You need to diversify, but it's clear that owning 200 different cryptos, 50 stocks and 10 metals will be counterproductive. Unless you're an investment fund, it's very difficult to develop effective investment strategies for so many assets at once. You'll also have a hard time managing your positions, selling at the right time or making an optimal DCA. What's more, if you're investing with a long-term vision, you have to realize that few of the top 100 cryptos will still be on this list in 10 years' time.
Being too impatient:
Many individuals discover cryptos and decide to take an interest in them during a period of euphoria, when everything is on the rise. Inevitably, this causes a stir, and novices think that cryptos are becoming a way to get very rich, quickly and easily.
It's neither quick nor easy. Sure, there are examples of people who have made astronomical sums in a short space of time thanks to cryptos, but the stories of investors who have lost everything are far more numerous. The aim is to be profitable over the long term, to recognize the periods of greatest opportunity, and to hedge when the market turns. This requires a great deal of patience, personal investment, and consistency in order to develop the strategy that will enable you to achieve your goals.
Investing too much:
It sounds logical, but it's always a good idea to remember: never invest more than you can afford to lose. The aim is to build up your portfolio little by little, and there's no point sending your savings of several years to an asset you've just discovered because it's made +500% over the last few months. On the contrary, you're bound to regret it and be scared off by market volatility.
Don't do your own research:
Don't let yourself be influenced by the various people on social networks, whether they're very well known or not at all. If they promise you exceptional returns on small projects, it's important to be aware of the risks involved and to carry out more in-depth research. It's important to do this for every project you plan to invest in. You can then sort out the scams from the serious projects and buy more serenely, and more prudently. In the cryptocurrency world, we call this "DYOR" for "Do Your Own Research".
Conclusion :
All the mistakes stated may seem logical, and indeed they are. But you need to build your strategy around avoiding them as early as possible when you start investing/trading in cryptocurrencies or any other financial assets. Again, I've made these mistakes myself. It was detrimental to me, but experience has enabled me to integrate them as I refined my strategy. I urge you not to repeat them, and to take the financial markets seriously from the moment you place your first buy order!
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