Why do retail investors often lose money when buying Crypto Assets? Reasons for losses in Crypto Assets and coping strategies 【Beginner's Guide】

The crypto market is experiencing severe fluctuations, and both institutions and retail investors face profits and losses in their investments. But why are retail investors more likely to incur losses in Crypto Assets trading? If one wants to break free from the “loss fate”, how should they handle their losing assets?

This article will outline the common reasons for retail investor losses and provide some practical coping suggestions, hoping to help you gain a foothold in the crypto market!

What are the reasons for retail investors losing money when buying Crypto Assets?

1. Lack of professional knowledge, blindly entering the market

“Blindly entering the market” is one of the biggest reasons for retail investors' losses. Many people excel in their own professional fields, but once they enter the crypto market, they suffer significant losses, the key being “participating without understanding.” If you rush in without sufficient research, it is no different from gambling - and good luck is not the norm!

A more common situation is that retail investors often find it difficult to grasp market trends, cannot distinguish whether the current market is bullish or bearish, do not understand how to choose quality projects, operate arbitrarily and lack strategy, hold onto their positions regardless of fluctuations, ultimately falling into the dilemma of “long-term holding losses”, unwilling to cut losses, and continuing to incur losses. This trading approach can easily lead to the loss of principal.

2. Pursuing excessively high investment returns

Investing comes with high returns inevitably accompanied by high risks, and this is no exception in the world of Crypto Assets. However, many retail investors do not realize this and enter the market fantasizing about “doubling their money in the short term.” Even the legendary investor Warren Buffett has an annual return rate of only about 20%, yet many retail investors dream of earning over 100% in a year? This is a completely unrealistic fantasy, and it is not surprising that they ultimately incur losses and exit the market.

3. Easily influenced by market news.

The so-called market news mainly refers to the dynamics related to encryption projects reported by news and media. Retail investors, due to limited information channels, often have to rely on these reports to make investment decisions. As a result, retail investors can lose money because of market news, mainly due to two fatal weaknesses: their information is lagging behind others, and they find it difficult to discern the truth from falsehood. In reality, most market news is essentially a trap, designed to lure retail investors. There are so many professional institutions and major funds in the market that even if the news is true, the limited profits have long been divided among them, leaving little opportunity for us small retail investors to take advantage. Those publicly disclosed news items are likely aimed at finding someone to take over.

4. Lack of understanding of the investment target

In fact, to profit from investment, the key is to truly understand the assets you are purchasing. However, many retail investors do not care about what the project is actually doing, buying purely based on intuition - usually “this project looks good” or “everyone is buying, so I'll buy too.”

Buying in directly without understanding the specific business and financial situation of the project is no different from gambling. How can one know when to increase their position and when to withdraw? By the time one realizes something is wrong, they often have already incurred significant losses.

5. Insufficient psychological quality, large emotional fluctuation

Many retail investors are overjoyed when crypto assets surge, but when the price drops, they immediately collapse and want to cry. When emotions are not managed properly, investment decisions can easily be influenced by one's mood. Sometimes they act impulsively, insisting on chasing highs even when they cannot bear the risks; at other times, they panic excessively, treating even high-quality projects as junk coins to sell indiscriminately, which can easily lead to a loss of rationality and judgment!

6. Dislike of loss, leading to early exit

Loss aversion originates from behavioral finance. It refers to the differing sensitivity of most people to losses and gains; even when the magnitude of losses and gains is the same, people typically exhibit greater aversion to losses. Therefore, even if retail investors hold crypto assets that should be highly profitable, their heightened sensitivity to losses compared to equivalent gains leads them to frequently suffer from daily losses during short-term price fluctuations, ultimately resulting in the reluctant decision to sell their crypto assets before the price rises, thereby forfeiting the potential gains they should have received.

7. Frequent portfolio switching operations

Many retail investors face a problem: they have done their homework and selected a project, but due to slow gains or repeated fluctuations, they can't hold their patience and want to engage in short-term trading, then buy back their original crypto assets. However, while the idea is good, the difficulty of switching positions in the crypto market is very high, and it entails more risks. As a result, the short-term projects they switch to often end up locking them in losses, and they become afraid to buy back the crypto assets they originally researched, ultimately just watching it rise helplessly.

8. Full warehouse operation, do not understand rest and recuperation.

The crypto market has bull and bear cycles. During the decline of a bear market, in fact, over 90% of crypto assets have no opportunity for profit. However, many retail investors are unwilling to take a break, intending to enhance capital efficiency, yet it is challenging to grasp the rhythm amidst the strong fluctuations of individual coins. Moreover, often being fully invested can lead to psychological exhaustion, as feeling trapped can lead to frustration, and when the rebound comes, they may hesitate to act, thus missing out on profit opportunities.

What should I do if my Crypto Assets are trapped and I have incurred trading losses?

1. If there is no technical support to continue holding the Crypto Assets, one should stop loss and exit.

If the trapped crypto assets, according to various technical analyses, still cannot slow down the decline or stop the drop and start to rise after reaching a certain position, then you should no longer continue to hold this crypto asset. To avoid further losses, you should decisively choose to sell and exit, and then select new crypto assets or other investment products.

2. If the analysis supports continuing to hold the Crypto Assets, one should reduce the position and set a new risk-reward ratio.

If the crypto assets that are trapped can still see a price recovery at a certain position after various technical analyses, then while you should reduce your holdings, you do not need to sell everything. However, since there has already been a loss, this requires you to reconsider the risk-reward ratio, which is the ratio of potential returns to risks. Only trading at points where the risk-reward ratio is reasonable can yield higher profits. Simply put, the closer you buy to support, the lower the risk and the higher the profit potential; conversely, you should sell closer to resistance.

3. In the face of continuous losses, those with a high trading frequency of more than 3 times a month should seek other strategies.

If you are in a loss position regardless of which crypto project you invest in, and your trading frequency is very high, it may be worth examining whether the investment strategies and technical analyses you are using are suitable for you. If you adopt strategies and technical indicators that do not align with your investment goals, risk preferences, and financial situation for crypto assets investment, it is tantamount to going against your initial objectives. Even holding promising crypto assets will be difficult to yield profits.

( 4. Stay calm, regardless of gains or losses.

Most people have the mindset of wanting to make money from Crypto Assets trading and wanting to earn more. However, earning money should be done with integrity, and losing money should be understood clearly. When making money, do not become complacent or overly confident; when not making money, one should remain rational, observe the changes, and wait for the next opportunity in the crypto market.

When you enter the crypto market, you can adopt different investment strategies separately or simultaneously, but to reduce investment risk, I would recommend that you adopt the following strategies for categorizing different Crypto Assets.

) long-term holding strategy

Long-term investment does not require constant attention to the fluctuations of the Crypto Assets you hold. When adopting this strategy, the only thing you need to do is to hold onto those Crypto Assets that are priced below their value and have good development prospects. As for how long this long term actually is, generally it requires you to hold them unchanged for 3-5 years, only taking the profits from the price increases as returns.

Therefore, the focus of a long-term holding strategy is on selecting projects rather than the holding process, so you do not need to overly concern yourself with short-term price fluctuations and timing of purchases. For Crypto Assets that you are prepared to hold for the long term, you can even buy in during significant market downturns.

Swing Trading Strategy

The swing trading strategy is a commonly used method by investors. Unlike the long-term holding strategy, it focuses more on pursuing relatively obvious swing profits. When investors buy into a crypto project, they will estimate in advance the degree of price increase or decrease. They sell when the price reaches the expected increase level or is completely different from the expectation, while they can choose to add to their position when the price drops within expectations, waiting for the price to rise again.

3) short-term trading strategy

This investment strategy is suitable for short-term investors who are quick to react, sensitive enough to market changes, and can accept high-frequency trading. For investors using short-term trading strategies, besides seizing the right timing and quickly capturing opportunities as they arise, it is more important to exit in time before the market situation reverses, because once they fall behind or fail to exit, the subsequent losses may far exceed the gains.

How can retail investors reduce the risk of losses in Crypto Assets trading?

As a retail investor, you may not be able to fully exit after incurring losses in crypto assets trading. However, being prepared before trading or hedging during trading can minimize the losses of crypto asset investments as much as possible. You can refer to the methods below. ### The following is the author's personal experience and insights, not to be taken as specific investment advice ).

Before trading, choose safer assets with lower risk, or select an appropriate trading method.

▪ Crypto Assets Index Fund

Crypto Assets index funds are different from single Crypto Assets; in addition to being able to diversify risk, they have a unique system mechanism that can automatically filter out quality projects. The constituent coins are dynamically adjusted, and after a period of time, poorly performing Crypto Assets in the index will be eliminated. In the long run, consistently investing held funds into different Crypto Assets index funds can still yield a relatively substantial return.

) ▪ Quantitative Trading

If you still want to challenge yourself in the crypto market, then quantitative trading is very suitable for you. Quantitative trading involves the use of computers to build a set of investment strategies based on commonly used technical indicators in the market, and then using programs to calculate and capture the direction and timing of buy and sell actions. Traders do not need to analyze or have any views on the market; they just need to execute buy and sell operations completely according to the signals provided by the program. The biggest advantage of this approach is that it can not only maximize the analysis of historical price data but also completely avoid losses caused by cognitive error risks.

Both of the above methods can help you effectively reduce the probability of losing money in the crypto market, but they also have some drawbacks. For example, the return on investment from index funds is relatively low compared to investing in a single crypto asset; quantitative trading, while simple to use, involves complex strategy development, and ultimately, in decision-making, computers cannot outsmart the human brain… Therefore, these issues can only reduce losses to a certain extent, but cannot fundamentally solve the problem.

How can I reduce losses when trading?

( ▪ Hedging Strategy

The above two trading methods require preparation from the beginning of the investment, but hedging in crypto assets trading can effectively help us reduce losses. Contract trading, as a common method of hedging, operates on the principle of opening positions in the opposite direction to hedge risks, allowing profits to offset losses. It enables flexible and quick investments, supports short-term trading, and the leverage mechanism allows small amounts of capital to amplify returns. An account on the Gate platform can trade various products such as crypto assets spot, futures, options, etc., making it convenient to implement hedging strategies.