If you go ahead to investigate the secrets of successful traders, you will find that their propensity to make profits is not a function of their ability to project market movements. Rather, traders consistently generate profits when they have successfully mastered different ways to put their emotions in check while engaging with the crypto market. Herein lies the ultimate secret of becoming a profitable crypto trader. In this article, I will explore the various ways people let their emotions get the best of them when trading and the antidotes to these apparent flaws.
Emotions Are the Bane of Crypto Trading
Some of the common mistakes limiting the efficiency of trading strategies are over-trading, revenge trading, late entering, closing trades prematurely, holding on to a dead trade, and so on. Being emotional while trading nullifies the efficacy of quality market projections. You could correctly predict price movements and still end up at the wrong side of the market if you allow your emotions to factor into your decision-making process.
In some cases, traders linger in the market for no apparent reason, when in truth, they are better off staying away. Other times, they play the waiting game for too long and miss out on clear chances to make profits. Although various other errors tend to plague the efficacy of crypto trading, they, however, all boil down to fear and greed.
Fear and Greed in Crypto Trading
Fear and greed are two potent psychological traits that cause traders to make errors that might prove fatal to their trading endeavor. For one, traders who lose sight of the time to quit a trade and take profit are allowing greed to fuel their drive to earn profits, even though indicators are projecting price swings. In this case, such traders, more often than not, disregard basic risk management practices and might end up incurring fatal losses.
Likewise, greed spurs traders to chase markets that are already showing signs of saturation. Take for instance the events that led to 2017’s bull market. Traders kept buying out of greed even when it was clear that the crypto market could not sustain such an unprecedented price surge.
On the other hand, fear limits traders to settle for meager profits. Traders who often exit trade prematurely have succumbed to emotions borne out of fear. While fear leads traders to sell their winners, it is also the reason why some hold on to losing trades for far too long.
Having discussed the effects of allowing emotions to govern one’s crypto trading activities, what then are the way traders can mitigate these challenges?
Possible Ways to Negate Emotions While Trading Crypto
1. Identify the Right Time to Trade and When to Stay Away
I believe that another viable step to mastering one’s emotions requires the realization that it is not necessary to always engage the market. There are times when you ought to take a break and save yourself from risks associated with impulsively entering or terminating trades. The moment you feel the need to constantly monitor or execute trades, then you should know that you have become susceptible to emotionally-triggered trading errors. To ensure that you only enter trades when you are certain of yourself, it is imperative to engage in other activities apart from crypto trading. Even though this might be difficult for full-time traders, it is, however, a potent antidote to emotion-based mistakes.
2. Trade with The Ideal Capital
It is common for the size of the crypto trading capital to determine the propensity of traders to initiate risk-averse or risk-neutral trades. If the capital is too small, a trader might go on a trading overdrive just to ensure that he or she doubles the current market position. Contrary to this, excessively large portfolios often overwhelm traders and spur them to be indecisive. Hence, you ought to determine the right portfolio size suitable for your current risk threshold, so as to free yourself from mistakes bordering on exiting trades too late or too soon.
3. Set A Goal and Stick to It
Quite frankly, there is no way an unprincipled trader will maintain a winning streak in the crypto market. In light of this, it is advisable to determine the amount you expect to earn and exit as soon as you hit the target. Do not let the current conditions sway you from your predefined goals. The moment you decide to linger on a trade, even after you have achieved your milestone, you should note that greed has begun to set in. On a final note, I will advise you to identify what works for you and stick to it.