Emotions in cryptocurrency trading – Is it possible to deal with them?
At the beginning of Bitcoin trading, newcomers make a big mistake – they assume improving their technical or fundamental analysis skills will allow them to become more successful.
In fact, the most important skill that allows a trader to become successful is controlling emotions, since emotions have the greatest impact on your results.
When a trader thinks clearly and is not influenced by emotions, they say he is in his comfort zone. When you are in your comfort zone, you are in control of your behavior and can follow a trading strategy in a logical and systematic way.
Emotions affecting trading
The emotions that have a negative impact on the outcome in trading are greed and fear.
Below you will find examples of these emotions and their possible negative impact on trading results.
Fear of loss can lead to further losses
When a trader is afraid of losses, he tries to avoid them. This, in fact, can increase losses even further.
For example, a trader can open a position and set a stop-loss, say 20 pips from the price, based on the strategy used. In other words, there is a rationale in terms of technical or fundamental analysis to set it where it is.
However, a trader affected by fear may close a trade ahead of schedule, simply because it is temporarily unprofitable. So, if the position is in the red by, say, 10 pips, then the trade will result in a 10-pip loss. If the trade itself were profitable, then the trader has just turned a winning trade into a losing trade simply because of fear.
Greed leads to trying to make too much profit and ends up with loss
When a person is greedy, he tries to make too much profit and deviates from his strategy. This concerns every business, even if you work with software development services.
For example, a trader can set a profit level according to a strategy. This means that – as in the case of stop-loss – there is an explanation for this action in terms of technical or fundamental analysis.
However, when a trader is influenced by greed, he does not close the position at the moment in which he should follow the strategy – he tries to get more. After that, luck can turn away from him, which will lead, in the end, to a decrease in profit, or, even worse, to a losing trade. This means that they are actually diminishing the profitability of the strategy due to the fact that greed forces them to try to increase profits.
The importance of discipline when trading
To avoid the influence of emotions during day trading Bitcoin, you need to develop a discipline that allows you to evaluate what is happening as objectively as possible.
There are several ways to achieve this, and we are going to discuss them below.
Trade using a tested strategy
You are much more likely to remain calm under pressure if you are confident in your trading strategy. If a strategy is not tested well enough, it can lead to doubt, which can allow fear to take over.
Testing and further development of the strategy should be carried out on a demo account before moving on to trading for real money.
The use of real money creates additional pressure, which may increase the negative emotions during trading and lead to further losses.
There is no strategy in which you win 100 per cent of the trades.
You must be prepared to take a loss. It is normal to hope that every trade will be profitable, however, inexperienced traders often feel more emotional when they are losing.
A profitable trader, on the other hand, can accept losses as part of a trading strategy and move on to the next trade without letting greed or fear influence their decisions.
In this article, we discussed the following moments:
Newcomers mistakenly consider technical and fundamental analysis skills to be the most important element in trading;
Controlling emotions is actually the most important skill a trader should consider;
Fear of loss can lead a trader to close trades earlier than necessary, which may lead to further losses;
Confidence in the trading strategy and trading on a demo account, after all, helps you learn to control your emotions;
A strategy with 100 per cent winning trades is not possible, you need to learn to accept the risk of every trade.
I hope that the above-mentioned advice will help you to see if you have problems with your emotions and, what is more important, will help you to find a good solution to how to avoid them.