10 Common Bitcoin Buying and Selling Mistakes and How to Avoid Them

Did you know in 2021, the bitcoins industry was estimated to be worth USD 17.05 billion?

The number of people using Bitcoin has soared in the last year. If you have an interest in cryptocurrencies, you’ve likely heard some financial experts warn against investing in them.

Investing in Bitcoin is like gambling. If you’re going to buy and sell Bitcoin yourself, it’s significant to know what mistakes to avoid. Otherwise, you could wind up losing your money.

We’re going to look at the common Bitcoin buying and selling mistakes and how to avoid them. Let’s get started.

1. Failing to Withdraw Profits

Failing to withdraw profits is a mistake when investors overlook their gains. And instead, keep their cryptocurrency in possession until it is worth even more. While the motivation for making more money is understandable, the inherent risks are high.

Cryptocurrency is highly volatile and can lose its value in an instant. To avoid this mistake, withdraw your profits regularly and re-invest.

As cryptocurrency is decentralized, there are no banks or regulators in control. It means any asset can suddenly become worthless.

Withdrawing Bitcoin trading profits establishes a safety cushion and decreases the likelihood of a huge loss. When using an ATM Bitcoin machine, look for a reputable company to ensure it is secure.

2. Doing Too Little Research

Many people jump into investing in cryptocurrencies without doing enough research, only to be surprised later when something goes wrong. If you cannot research and understand the current market conditions, you can easily overpay or sell your Bitcoin too cheaply.

To avoid this mistake, it is vital to research the current market prices and volume. Take time to educate yourself by reading official Bitcoin websites, forums, and articles from experienced experts. Also, it is beneficial to join related technical webinars, to stay up to date with the latest news.

Check out reviews for the wallets and trading platforms you plan to use. Additionally, it is key to research the company or individual you are buying from to ensure they are reputable and trustworthy. The same applies when selling Bitcoin; buyers should be well-researched to avoid being taken advantage of.

3. Relying Too Much on Other People’s Advice

It is vital to form your own educated opinion based on your detailed research. Also, it is crucial to recognize potential conflicts of interest when someone is giving advice.

Do not just listen to one individual or source. Question the advice it gives you and ensure backed up with facts and reliable sources. It is necessary to ask questions, use multiple sources, and read widely, as misinformation can be widespread in the bitcoin markets.

Finally, if something sounds too good to be true, it probably is – be wary of any advice that appears too good of a deal, as it could be a fraudulent scam. Avoid getting wrapped up in market hype and trust your judgment in deciding on the bitcoin market.

4. Not Setting a Stop Loss

When prices become volatile, or a trader experiences a streak of losses, the lack of a stop loss puts them at risk of taking on greater losses. A stop-loss order is a sell order placed below the current market price. Whereby trades will be automatically closed should the market price decline to the set limit.

Without this order, traders may not realize their losses in time. The prices may decline further after the trader has closed the order.

To avoid this type of mistake, you should set a stop-loss order when trading Bitcoin. It enables you to cut your losses in case of an unexpected price change.

Check the risks associated with the order and only set stops that are appropriate for the market conditions. It is also advisable to use trailing stops when market conditions are particularly volatile. And check the stop order to ensure it’s set at the correct level.

Stops losses are an easy and fundamental way of reducing risk when buying and selling Bitcoin. Use them always in your Bitcoin trading strategy to ensure optimal risk management and prevent financial losses. 

5. Not Researching Taxes

Tax regulations and laws vary by jurisdiction. Buyers and sellers of Bitcoin need to understand the regulations of the area in which they are doing business.

Ignoring the tax implications of buying and selling Bitcoin can have serious consequences. These include fines and other penalties.

To avoid this common mistake, research your tax situation before undertaking any Bitcoin transactions. It is important to keep track of all payouts from Bitcoin transactions. It ensures that you properly pay all taxes.

Also, keep a detailed ledger so you can prepare and file any necessary tax forms. Buyers and sellers may wish to consult a financial or tax professional. They provide further clarification and guidance on tax matters related to Bitcoin.

6. Not Diversifying

For investors, diversification should be essential. Yet, many invest in a single coin or put most of their capital into a particular asset. This occurs when people focus on buying and holding bitcoin instead of exploring other, less risky investment strategies.

This can be risky as the value of Bitcoin is subject to a lot of volatility as compared to traditional assets. As a result, you are vulnerable to fluctuating markets, as all your money is sitting on one asset. It will limit the potential returns of your portfolio should your chosen asset collapse in value.

To avoid such devastating losses, diversify your portfolios into various coins. And spread capital into different assets – even those outside the cryptocurrency space. These are stocks, precious metals, and commodities.

Spread the capital across various investments. You can limit risk while maximizing gains in your portfolio. Even with these measures in place, you should always track the market to stay abreast of any changes.

7. Not Comparing Cryptocurrency Exchanges

Exchanges vary in the coins they offer, the fees, and other factors. Not taking the time to shop around can cause an unfavorable experience.

To avoid this mistake, compare exchange rates when making transactions. Different exchanges offer different rates. Taking the time to read customer reviews, contact customer service, and compare commissions is worth it to find the best fit.

Most cryptocurrency exchanges will have fees associated with trades. Include the deposit/withdrawal fees, exchange rates, and transaction fees. Before beginning to buy and sell Bitcoin, compare the fees associated with different exchanges.

Also, research the total costs associated with each transaction. Take the time to weigh the pros and cons of each Bitcoin exchange platform before investing. It can be sure you don’t get taken advantage of or stuck with a poor deal.

8. Chasing Pump and Dumps

Pump and dump schemes are used to inflate the price of an asset to entice people to buy it at an increased price. Then scammer dumps their now-overvalued asset, leaving the buyers with a heavy loss.

To avoid such situations, you should be careful of overly enthusiastic online discussions. Also, be aware of unusual price movements and sudden and unexplained surges in the price of an asset. Spend time researching different crypto exchanges.

And use a reputable broker for buying and selling digital currencies. Take the time to understand the market and use analytical tools to identify underlying trends.

9. Unwise Leverage Trading

Unwise leverage trading is one of the biggest mistakes beginner traders make. Leverage trading can be risky as it allows traders to increase their exposure to markets by using borrowed funds. This type of trading carries a higher risk of loss since traders are risking more money than they have available.

This high-risk trading strategy can be problematic. It can lead to wipeouts during volatile market conditions. To avoid unwise leverage trading, it is critical to understand how the market works and to know the risks involved.

You should always take a conservative approach to risk management. Trade only with the amount of capital you can comfortably afford to lose.

Demo trading is an excellent way to get to grips with the marketplace and try out different strategies without putting their capital at risk. Leverage trading can be a viable option for experienced traders. Yet, it is helpful to be mindful of the risks involved.

10. Not Using Basic Security Protocols

Make sure you are using secure and reliable online payment, storage, and transfer portals. Passwords should be at least eight characters long, using upper and lower-case letters and numbers. Be sure to two-factor authentication for extra security.

Never use passwords that could be easily guessed, such as pet names or birthdays. Also, regularly update your passwords. Do not share sensitive financial information with anyone, especially if they are trying to get you to pay out of the ordinary.

Only use trusted exchanges or a secure wallet. Always use a secure internet connection when dealing with financial transactions. If a connection is unsecured, end the transaction and look for another platform.

Avoid These Bitcoin Buying and Selling Mistakes

Bitcoin trading can be a daunting journey if individuals aren’t careful and aware of the potential Bitcoin buying and selling mistakes they can make. By doing research, withdrawing your profits, not relying on others’ advice, setting a stop loss, and being aware of the tax situation, you can be better informed and equipped while trading.

Also, diversify your portfolio, compare cryptocurrency exchanges, avoid pumps and dumps schemes, be wise in leveraged trading, and always use basic security protocols. Start trading wisely today and expect a high return on investment!

Check out our other posts to learn all you can!