The main mistakes first-time investors make

Written by Evgenia Sidorova
Written by
Investing reporter
ECOS brand manager....
5   min.
The main mistakes first-time investors make

Most beginners in the falling market make a number of mistakes

Let’s review the most popular of them and find out how to avoid them

What do we advise to long-term investors?

If you are a long-term investor and believe in the development of the cryptocurrency market, you do not need to be scared by a falling market. 

You should always have some reserve of cash in dollars or stable coins in your investment portfolio. Free funds are your bullets. As long as you have them, you can react to any market situation, and a falling market is not a tragedy for you, but an opportunity to accumulate assets for the long term at interesting prices.

What are the beginners’ mistakes?

The first mistake

The first mistake for beginners is to panic and make loss-making transactions at the very bottom of the market  closing a position at the lowest price possible during a strong fall in the market

As a rule, after the rebound takes place when beginners make the second mistake.

After closing a losing position, they see a rebound in the market, and in the hope of getting even, make a buy position, but with a bigger amount than the original transaction. After that, as a rule, the market falls again, and they fix the loss at the bottom in desperation and under the power of emotions.

Below, using the example of Ethereum price fall from $3,800 to $3,300, we see the first mistake. Because of the lack of experience and self-control in the market, the beginners usually close their positions at the very bottom at $3300 (marked with an arrow on the chart), after that, they see that the price starts to rise and at $3500 (marked with an asterisk on the chart), they buy more than the initial amount of positions in the hope to win back.

After that, as we see on the chart, the price has gone down again, to $ 2900. They fix the loss again, some part of them increases the number of funds for re-entry in the next transaction, some borrowed funds, repeating the circle of hell for themselves over and over again.

Another part of them leaves the market thinking that they were cheated, that there is always some manipulator, the exchange, or another party that always trades against them, because when they buy the price is always going down, and when they sell the price is always going up.

Ethereum price fall from $3,800 to $3,300

Remember that the market does not owe anyone anything, and after a losing trade, it is better to stay away from the market for a while, to come to your senses and after some time, with a cool head, soberly assess the situation. And for long-term investments, it is better not to make frequent deals, not to trade during the day and especially trade with leverage.

Leverage trading is the fastest way for a non-professional investor to lose his deposit. 

The second mistake

The main enemy of the trader during the market crash can be the feeling of guilt for the loss of the client’s money or family savings

The desire to get even is the most destructive for the market participants, this trap most newcomers fall into, especially for men, an experiment was carried out, the result of which was the discovery that female traders are more disciplined in the market, they have a less developed sense of personal ego, which ruins the market for men, because most market participants are already established people in their areas, in case of a loss they try to prove and get even, that they are still stronger, and in the next transaction they will certainly win back and prove to everybody that they are better. 

The third mistake

There is no need to be nervous and enter into transactions on emotions! Remember, if you do not have time to exit at the moment of a strong fall, the worst thing you can do is to fix the loss at the moment of panic in the market 

A market is a tool of passing from the impatient to the patient.

If you think that the drawdown will not exceed 20% and will not last more than one or two months, then you are clearly deluding yourself.

The fourth mistake

If you are always thinking about your position, it is too big for you! You have to invest only the amount that is comfortable for you

Taking too big a position leads to misjudging the market situation, and makes you watch the price all the time, thinking about it, which certainly affects your livelihood.

You need to be comfortable investing, not in a state of shock at every big drop in price

You can be ready to lose 50% or more of your assets when you invest in cryptocurrencies.  

Crypto-currencies are very volatile, but also when they go up, volatility can bring you huge profits. 

volatility is a feature of cryptocurrencies

High volatility is a feature of cryptocurrencies, below are the volatility levels of classic assets and cryptocurrencies.

The fifth mistake 

It is a mistake to enter the asset for the whole capital (even if allocated for investment), or invest without diversification, only in one asset

In the market, there is a concept of “marriage of assets”, which means to invest all into one asset only, and then pray to all the gods in the fall, so that it grows and gives profit. Remember that diversification in the cryptocurrency market is very important. In 2021, 52 DeFi projects were hacked for $10 billion!

And what if your only project gets hacked? Not to mention the risk of scam founders of the project, and the risk that the technology of the project will not find use in the market. 

Remember that the free cache is also a position, after all, your stable coins are usually denominated in dollars, it is subject to inflation and fluctuates with other currencies, below you can see the graph of the dollar index:

graph of the dollar index

The U.S. Dollar Index (USDX) is a measure of the value of the U.S. dollar relative to the value of a basket of currencies of the most important trading partners of the United States.

Always keep in mind your strategy and time horizon of your investments, do not hurry and do not succumb to emotions, remember that the markets are all subject to cyclicality, the cycle of growth followed by a cycle of decline and vice versa, but in the cryptocurrency market cycles change much faster than in classic markets and for long-term investments this is an advantage.

Try not to fall for the banal mistakes of beginners in the market, and invest as an experienced investor. Who wants everything at once, gets NOTHING, but gradually.

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