To become a successful cryptocurrency trader, you must learn to leave emotions aside and focus only on executing a previously determined trading strategy. Every trading action performed under the influence of an emotional response is likely less than optimal even if the outcome ends up being positive.
We usually don’t even notice when emotions have gotten the better of us until it’s too late and our bottom line is impacted. We have previously discussed the five most common trading mistakes and in this article, we are going to examine the psychologically driven responses and bad habits that usually accompany them.
Don't Obsess Over Past Trades
All you can really do as a trader is to learn about the asset you are trading, decide on the most profitable strategy you are going to employ to maximize your returns, and then execute on that strategy with the knowledge you gained to the best of your abilities.
If you find yourself constantly obsessing over the trades that you have made in the past and doubting whether you should have kept holding an asset or you should have sold earlier, it’s a good indication that you are trading with money that you can not afford to lose.
If the asset increased in value just after you sold it, don’t pity yourself because of the lost profit you could have made, instead remember that you had good reasons to sell when you did, move on and focus on the next opportunity.
You can always decide to leave a small amount of your original position intact and let it ride if you want to avoid the feeling of regret over the potentially missed future gains. More importantly, be honest with yourself about the reasons why past trades are on your mind.
If you feel like you could have used a better strategy or did more diligent research, that is a great reason to be hard on yourself and it will make you a better trader if you can avoid making the same mistakes in the future.
On the other hand, if you are hard on yourself only due to the money lost, even if you did everything else right, you should consider lowering your financial exposure. It’s hard to make rational decisions needed to be a successful trader if you are operating with money you are not prepared to lose.
Before selling or buying, be completely clear about the rationale behind the course of action you are undertaking. You can always write down your thought process prior to the trade so you can revisit it at a later time if you are prone to second-guessing yourself.
Refusing to Sell a Position at a Loss
If you aspire to become a successful trader, you must accept that not every trade make will be profitable. One of the most costly bad habits you can have is avoiding to sell your position at a loss at all costs.
Again, the best approach to avoid losing too much in a single trade, often due to stubbornness, is to adhere to a previously determined trading strategy. If you find yourself struggling to sell at a loss, create a stop loss order, which will activate as soon as before set parameters are met.
You can create quite advanced rules for every type of scenario - for example, you can set an automatic sell order that sells 75% of your position when the price of an asset reaches a certain threshold.
Going “All-in”
After a series of bad trades, it becomes an increasingly attractive proposition to make all the lost funds back in a single trade. Who knows how many trading careers were permanently ended chasing that one Hail Mary trade. If you are thinking about attempting this kind of reckless trade, it’s best to take a break from trading until you recognize how destructive such actions can be.
In order to break this damaging habit and protect yourself from impulse decisions, follow a simple rule and never invest more than 10% of your entire portfolio in a single play. The risk of ruin is still quite high when one-tenth of your funds are invested into a single position, but manageable. The leading strategy to minimize the risk of ruin and increase your trading longevity is portfolio diversification.
Believing the Market is Rigged Against You
Many people, especially on social media platforms, express their despair over bad trading outcomes and seemingly find solace in thinking that the market is rigged against them. Some market participants certainly have a bigger impact on the market than others, however, the idea that all market players have conspired against a single trader seems, to put it mildly, quite a stretch.
Thinking that the market is working against you or that you are just born unlucky is a sure way to make bad decisions. When you feel like everything is working against you, you are probably subconsciously making bad trades, which lead to bad results and the irrational thought process that started it all ultimately becomes a self-fulfilling prophecy.
Don’t let any amount of energy go to waste by thinking how unlucky you are or how the market is somehow holding you back since in reality, everyone has the same chances to succeed. Instead, always give your best effort, work on perfecting your trading strategy and positive results will follow.