BikoTrading Academy

Psychology in Crypto Trading

Psychology in Crypto Trading back2

Not so long ago, crypto-exchanges appeared, which allowed its participants anywhere in the world to buy, sell and exchange some cryptocurrencies for others, or for fiat of other countries. Each crypto-exchange is trying to offer clients convenient ways to convert financial instruments, as well as provide the opportunity to conduct transactions on their own terms. The high rate of development and distribution of cryptocurrencies based on Blockchain, as well as the gradual wide acceptance of the global community and leading economists, ensure further improvement of exchange technologies. It means that in an effort to provide the most comfortable conditions for its clients, each crypto-exchange will bring them to an increasingly higher quality level of service with innovative shades. But at the same time, within the technological process of exchange trading, which is available to users (from professional traders to amateurs), the question of psychology and its role in influencing decision-making has not been canceled.

Successful trading depends primarily on the psychology of the cryptocurrency trader by 70% and only by 30% on the trading scheme/strategy.When trading on the stock exchange, it is necessary to develop discipline, self-control and be able to react quickly to volatile stock charts. All of this will allow you to earn more efficiently and minimize your losses. Everyone must remember, from amateur to expert, that in financial markets you can not only make money, but also lose money. Cryptocurrency rates are still subject to political and regulatory influences, their value is influenced by the reputation of the founders of the companies, information throw-ups about blockchain projects and plans for their further development, scandals and revelations. Nevertheless, there are simple rules of successful trading from the field of psychology that will reduce the risks when trying to make money from cryptocurrency and not only. There are a number of problems that always hinder every amateur beginner:

– Excitement

– Fear

– Greed

– Unwillingness to learn more about trading

– Imaginary visualization of results

Psychology in Crypto Trading pasted image 0

All of these problems have psychological aspects. Emotions, feelings and desires significantly affect trading decisions made by a trader. It happens quite often not only on traditional exchanges, but also in the cryptocurrency industry.

Excitement is an emotional state when a person feels lucky, and as long as a series of successful trades continues, he or she makes larger financial transactions. Excitement often motivates a person to turn away from long-term deals and trends, and to look toward short-term operations. After all, it seems that the more often you make successful transactions, the more capital you will earn. No! The more often you make mistakes, which leads to the default of your account. Money is made on long-term trends and operations. Traders are often worried, fearing a bad trade closing. Sure, losing is bad, but sometimes it’s better to close a position at a loss than to lose a big amount just because you hope for a quick price reversal. This is why fear often leads to bad strategic decisions. Fear of loss eventually becomes a verdict on your positioning for profit. On the same line with fear is, oddly enough, the greed factor. Having essentially a different source of inspiration, greed, like fear, leads to an overall unfortunate result: the default of your trading account.

An unwillingness to learn new strategies, technologies, and a denial of foresight, also leads to failure. Successful is the one who always strives to learn new things, and perceives the fact and necessity of constant learning. As learning is a process of striving to progress one’s results and professional qualities. Another scourge is the desire or visualization. Everyone wants to see a price movement in the right direction. This is quite dangerous. Visualizing a price spike in the right direction can lead to daydreaming and investing too much in cryptocurrency. This will lead to losses. This is where you should always remember to diversify your investments. Remember your psychological profile even when you program your trading strategies, algorithms and bots. After all, your algorithm is essentially your psychological portrait. After all, the above-mentioned flaws, especially in a strategy, can dominate and damage your deposit and reputation. The main signs of a competent crypto-trading are the same as in other exchanges (like FOREX). This is a kind of algorithm of sustainable strategy for profit:

Psychology in Crypto Trading pasted image 2

– Use 3% or less risk per trade

– Do not close profitable trades too early

– Do not accumulate unprofitable trades

– Fix quick speculative profits

– Respect the trend

– Pay more attention to liquid assets (cryptocurrencies)

– Establish your personal rules for entry and exit of deals and stick to them

– Long-term trading strategy gives maximum sustainable profits

– Do not use the principles of Martingale tactics if you have no experience.

You can’t double the volume of a trade if it closed in the red. If there was a loss, it means that the market situation on the cryptocurrency was predicted incorrectly and you need to work on improving your analytical skills, rather than making a larger trade, which will surely also close in the negative.

Obviously, trading psychology has a significant impact on the performance of exchange speculation in both the traditional market and cryptocurrencies. It is important to remember that a person’s success in any sphere of activity depends on the emotional component, namely the inner balance. Trading is a nerve-racking activity, and if you don’t learn to take your emotions under control, the results can be disastrous.

You can’t double the volume of a trade if it closed in the red. If there was a loss, it means that the market situation on the cryptocurrency was predicted incorrectly and you need to work on improving your analytical skills, rather than making a larger trade, which will surely also close in the negative.

Obviously, trading psychology has a significant impact on the performance of exchange speculation in both the traditional market and cryptocurrencies. It is important to remember that a person’s success in any sphere of activity depends on the emotional component, namely the inner balance. Trading is a nerve-racking activity, and if you don’t learn to take your emotions under control, the results can be disastrous.

In our opinion, two fundamental factors are the basis of success in trading. The first factor is in the area of trade idea formulation, and the second one is in the area of its realization. On one hand, methods of technical and fundamental analysis are used for the formulation of a trading idea, in order to select an exchange instrument and determine the moment to open and close a position in it. On the other hand, money management methods are used for determining the optimal size of the position to be opened. As is known, it is impossible to achieve stable success in exchange trading without these two essential moments. As experience shows, most people are intelligent enough to master all necessary theoretical knowledge on technical and fundamental analysis within several months of intensive training. There are no special intellectual difficulties. But, as the same experience shows, this is obviously not enough for successful exchange trading, because all knowledge can appear to be useless, if the second success factor – practical realization of trading ideas, which is based not on the intellectual sphere, but on the psychological and emotional one, is not present to a sufficient extent. It is within this very sphere where the main problem arises for many traders, which prevents them from getting the stable profit. As a rule it is connected with a person’s psycho-emotional profile. It is what determines how a trader will behave in psychologically stressful situations, which the exchange trade is full of. Emotions and feelings inherent to all people – fear, greed, excitement, envy, hope, etc. – often have a decisive influence on traders’ behavior, preventing them from strictly following the trading strategy and plan, even if they have them. From the psychological point of view, the process of exchange activity can be divided into stages, passing through which the trader can return to the starting point. The above described variants of events and risk factors are one of variants of behavior of a trader; however, it often happens exactly in reverse. After receiving losses from first transactions the trader loses interest to exchange trade, his hands sink and he falls into despair. In this case the first step to victory is confession of defeat. It seems silly and ridiculous, but it works. After that there are two variants: either the trader leaves the exchange market forever or comes back to the battlefield. Such “returns” can occur repeatedly. And at a certain time, after repeated analysis of his actions, mistakes made and their consequences, a person from a beginner begins to turn into an experienced trader, which is marked by the stability of his activity and, maybe, slow, but steady growth of his deposit and profit.

Psychology in Crypto Trading pasted image 3

The psychological basis of success in trading, which lead to victory and the absence of which is tantamount to defeat, are as follows:

– It is not only lack of self-control, discipline and focus on the process that causes defeat

– Self-control, discipline and the ability to concentrate are not enough to achieve success

– It is equally important to be able to adapt to change in order to succeed

In principle, it is possible to consider the idea that traditional approaches to the psychology of trading are limited. Most of the manuals for traders recognize only self-control and discipline as the key qualities necessary for successful trading. Of course, these qualities are necessary in any field of activity. Trading is not an exception, especially taking into account that it is in the risky sector. But self-control and discipline are not enough to achieve success. Trading is a business. And any business does not stand still. You can’t find a formula for success and use it all your life. You will need to monitor trends and constantly look for new and successful solutions.

The main trait of a successful trader is adaptability to changes. Its underdevelopment/absence leads to defeat, major money losses. Many technology companies continued to produce desktop computers when laptops became popular. The same companies continued to produce laptops when tablets became popular. These companies’ products were of high quality, and their employees were organized to perform their predetermined tasks. But they lost large sums because they could not adapt to the change in demand. If we draw a parallel with the field of investment, the similarities become noticeable. The stock market, like any other market, is subject to change. One period is succeeded by another. The methods which were successful in the previous period can lead to the failure in the current one.

Psychology in Crypto Trading pasted image 4

The key concept in the exchange trade is volatility. The change of this index shows the beginning of the new period. When volatility rises, it makes trading more risky. Correspondingly, when this indicator decreases, the degree of risk of trading operations decreases. When the volatility level is high, the tendencies are more often reversed. Strong and weak positions may swap. If the level of volatility is high, the trends continue for some time. It should be concluded from the above that market processes, methods during periods of high and low volatility are markedly different. You cannot use the same methods when market trends change. Often it is adherence to previous methods, excessive discipline that leads to collapse, not emotionality. Just because an investor has failed does not mean that he has suddenly become morally unstable, disorganized.

Of course, one can argue that why do I need this psychology? After all, in addition to creating your own strategies and individual work, some exchanges (including crypto-exchanges especially) allow you to minimize risks by following the strategies of experienced traders, such service is called a PAMM account. PAMM account gives one clients (Subscribers) the opportunity to follow the trading strategies of experienced and professional traders (Providers). Provider’s trading results are publicly available. With the help of the account rating, profitability graphs and other traders’ reviews, you can choose the most suitable Provider and start following his strategy. But again, in this case, the Provider is a human being with all the ensuing consequences. And psychological aspects are no stranger to professionals as well, including luck and mistakes. The financial market attracts people by the possibility of getting (with the proper organization of trade) independence, including financial one. A successful trader may live and work in any country of the world having neither a boss nor subordinates. The motivation of people coming to trade on the exchange market can be different: from getting higher percentage than in the bank to earning several thousand dollars a day. At the financial market (including cryptocurrencies) there are two main categories of people: investors, who buy assets or currency for a relatively long period of time and speculators, who receive profit from price changes of certain assets for a short period of time. True financial market speculators do not become, they are born. And this, as many believe, an easy way to make money is not suitable to all people. First of all, the skillful use and manipulation of the psychological aspects of the person, make it possible to become a speculator. And this, of course, in addition to knowledge and analytical skills. As experience shows, successful speculation is the right state of mind. It would seem to be the easiest thing a person can acquire. But in fact, very few people have this kind of self-adjustment. One should also distinguish between the psychology of the market and the personal psychology of a trader. The market behavior in general depends on people, because they, i.e. the exchange crowd, determine its direction. However, quite often traders lose sight of the most important component of winning – controlling their personal emotions, i.e. their psychology. Without self-control, there can be no control over one’s trading capital. If a trader does not tune in to the range of the exchange crowd, if he does not pay attention to changes in its psychology, he will not achieve significant success in trading. In order to be successful in Crypto market you have to have a sober look at trading, notice its tendencies and their changes, instead of wasting your time daydreaming or complaining of failures.

pasted image 5  Psychology in Crypto Trading pasted image 5 p9iw1w0gjgmcu3y8cx50t5accgufuo4suh3po5l3fk

Any price of a financial instrument is a momentary agreement about its value reached by the exchange crowd and expressed in the fact of transaction, i.e. at a given moment it is a point of equilibrium between the players going up and down, or the ” balance” price. Asset prices are created by the masses of traders: buyers, sellers and fluctuating market observers. The graphs of prices and trading volumes reflect the psychology of the exchange crowd. And it is always worth remembering! After all, the main purpose of psychology analysis in the exchange trade – not the quantity, but the quality of transactions.

A person, who wants to be a good trader, must always remember that the most important trading tool is not a computer, not information service, and not even developed trading methods. It’s him! If a trader is not suitable for this activity – he shouldn’t trade!

So before you push orders on a trading platform, think about whether or not you are suited for this role.