Your crypto trading journey is going to be a ride full of emotions and learnings. You will surely win many trades and lose many trades as well.
The most successful traders are the ones who can control their emotions during this journey and trade like a robot. Use your emotions only while making the strategies, but execution should be like a robot.
Traditional markets have always fluctuated, but cryptocurrency markets are known for their high volatility. The significant price movement that this new asset class goes through daily is something that had never been seen before. For a stock or a commodity to double in price, it would usually take years, but for a crypto asset to gain 100% in market value can take only a few minutes.
Such an erratic price action can make it very difficult to time a trade properly, especially when emotions get in the way.
Stages Of The Psychology Of A Market Cycle To Be Aware Of How Your Emotions May Be Controlling Your Trades.
Disbelief :
After a prolonged downward trend or bear market, traders tend to disregard the first rallies into a bull market because they believe the uptrend will fail to gain strength.
Hope:
After a significant price recovery from the lows, traders start to think that the uptrend can hold.
Optimism:
Traders become more confident about the uptrend’s strength as prices start trending higher.
Belief :
Traders have faith that the uptrend will hold and start entering the market with the expectation that prices will continue to surge.
Thrill :
As profits start to pile up, the market sentiment turns bullish and traders are more vocal about the positions that they are entering.
Euphoria:
After a parabolic price increase, FOMO starts kicking in among traders who feel that the uptrend will continue, there is more money to be made, and nothing can go wrong.
Complacency:
Traders often mistake the first pullback after a parabolic price increase for a brief retracement to collect liquidity before new all-time highs.
Anxiety :
As prices continue to drop without a major recovery, traders become concerned and worried about the state of the uptrend.
Denial:
Traders become long-term HODLers because they believe prices will eventually the market will reverse and they will be able to recover their profits.
Panic :
As prices continue to free fall, traders start to panic sell their holdings to cut losses short and keep some capital to buy at the bottom.
Capitulation :
Nothing seems to stop prices from continuing to decline, which generates further panic among traders and even the long-term HODLers sell.
Anger:
Traders cannot believe that they never realized profits when the market was trending up, and they become angry at themselves because of the losses that they have incurred.
Depression :
All hope is lost, and traders feel foolish for not exiting the market at the right time and believing that prices were going to continue to increase.
Disbelief :
After a prolonged downward trend or bear market, traders tend to disregard the first rallies into a bull market because they believe the uptrend will fail to gain strength.
All market participants go through the same emotions, which is why having a clear understanding of the stages of the psychology of a market cycle is a must for any cryptocurrency trader to become successful.
Although no individual opinion is completely dominant, the overall market sentiment is what drives financial shifts.
Dealing With FOMO:
During uptrends, traders experience feelings of belief, optimism, and thrill, which often leads to FOMO near the market top. You must set realistic expectations before entering a trade and exit the trade when your expectations are met instead of pushing your take-profit orders further.
On the other hand, traders experience feelings of complacency, anxiety, and denial, during downtrends, which often leads to panic selling near the market bottom. To avoid such actions you must clearly understand how much you are willing to risk before entering a trade. Let your stop-loss orders prevent you from losing a lot of capital, and wait for high-probability setups to show up before entering your next trade.
Some of the most profitable traders often use diversification and dollar-cost averaging as their main strategies to help control emotions when trading.
With diversification, you can spread out your capital across multiple assets in different market sectors to reduce your risk. While one particular asset could be in a downtrend, another asset could be trending upwards, helping keep your portfolio afloat.
Dollar-cost averaging is another popular strategy that helps reduce your risk exposure by investing set amounts at certain price levels. When you invest slowly over time, rather than all at once, you reduce your exposure to market volatility, and you are more likely to buy the dip.
Both of these strategies as well as having a clear understanding of the emotions that drive a market cycle can help you stick to your trading plan, realize profits in time, exit losing trades, and improve your overall trading skills.
Avoiding FOMO and Panic Selling:
Although it might be difficult to avoid FOMO and panic selling, it is possible to manage these emotions so they do not dictate how you trade.
Developing and sticking to a trading plan that works for you is the best method, plain and simple. A trading plan should outline the kind of conditions that make a setup tradeable as well as your objectives and the risk that you are willing to take on each trade.
Keeping a trading journal to record everything you do as a trader, including strategy development, risk management, feelings, and every step of the process can also be a very effective tool to avoid FOMO and panic selling. It can help to have a clear understanding of where mistakes were made in the past to prevent them from happening in the future. The more details you provide to yourself about your trading experience, the better insights you will have to grow your account and maintain your capital.
Successful traders usually have a clear understanding of the losses or profits they will incur before entering a trade. Being very meticulous when documenting their success and failures helps them prevent making the same mistakes over and over again.
Many of the emotions that come up when trading is predictable, but if you fail to recognize when you are experiencing them, it is harder to manage them. You must be aware when you feel overly optimistic or highly anxious to stick to your trading plan.
Implementing a robust risk management strategy is an essential component of trading. With proper risk controls, you can reduce losses and prevent yourself from losing your entire trading capital. If risks can be controlled, you can increase the chance of making profits in the market.
When you are in a trade, the market will do whatever it wants to do it could go up, down, or even sideways. As such, market movements are completely out of your control. But what you can control instead is a risk, and decide how and when you trade under market conditions that are conducive to your methods and style.
Responsible trading is about having complete control over your trades and taking responsibility for your actions. Trading responsibly calls for not spending beyond your means and not risking money that you cannot afford to lose.
Sharpen Your Skills Before Trading
One fantastic way to build confidence in your trading strategy is with mock trading.
You can trade at your own pace and test multiple strategies without risking any capital. And when you feel like you are ready, you can easily switch to real trading and enjoy the same tools from the leading crypto derivatives exchange.
Conclusion:
Crypto trading has changed millions of lives all across the globe. With the rising adoption of cryptocurrencies and crypto technologies powering some of the most prominent institutes, now is the best time to start crypto trading.
The most significant consideration for any crypto trader is that like any other form of trading, success in crypto trading is heavily dependent on the way you control your emotions. If you can master the art of managing both risk and your feelings, you can potentially increase your trading profits or the ratio of good vs bad trades.
