Along with DYOR, another common tenet that serious traders and investors live by is “Never invest more than you can afford to lose.” Even though major cryptocurrencies like Bitcoin and Ethereum are achieving mass adoption through crypto ETFs and other products, not every crypto is viewed with the same level of trust, and for good reason.

Past price performance is not a definitive indicator of future success or failure. Only investing what you can afford to lose ensures that you’ll still be able to recover and survive in everyday life if your crypto investment plan doesn’t work out.

Keeping positions to an affordable level will also help you manage your emotions during market volatility, which is an almost daily occurrence in crypto. Even when large-cap coins consolidate, tokens with smaller valuations can still make huge moves.

Setting Smart Investment Limits

There’s no definitive formula for allocating personal funds across investments, savings, and everyday spending. Financial regulators like the UK’s Financial Conduct Authority (FCA) caution against putting more than 10% of your investable assets into volatile and high-risk investments like crypto.

On social media, many crypto enthusiasts claim that they’re going “all in” on the latest coins. Take those posts with a grain of salt. If the market doesn’t go your way, you don’t want to lose everything. Create a financial plan that suits you, and consult a professional advisor if you need a second opinion.

Managing Risk in Volatile Markets

By budgeting appropriately and establishing your own personal financial plan, you’ll be prepared to manage positions while making logical decisions. Rather than feeling overwhelmed by sudden gains or losses, focus on a risk management strategy and keep a clear head when researching new projects.

How to Avoid This Crypto Mistake

  • Experiment With Dollar-Cost Averaging: Make small asset purchases over an extended period, usually at regular intervals, instead of trying to time the market.
  • Set a Budget and Stick to It: Work out how much you can allocate toward crypto each month, and limit positions to that amount over the long term.
  • Limit Exposure to High-Risk Positions: Many traders allocate most of their bankrolls to relatively low-volatility coins and use a smaller amount to buy high-risk tokens.