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How to Stay on Top of Your Emotions With Cryptos | gt.io
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gt.io
Date:
16th Dec 2020
Author:
gt.io

How to Stay on Top of Your Emotions When Trading Cryptos

Article Table of Contents:


 
Contrary to the impact on many financial markets, 2020 has gone quite well for cryptocurrencies. The Bloomberg Galaxy Crypto Index was up 65%. This meant cryptos offered greater returns than gold, bonds, global stocks, and commodities. The main reason behind this was the impressive performance by Bitcoin and Ethereum. Bitcoin crossed the $19,000 mark in November 2020 and is expected to touch $20,000 in the near future. Ethereum also managed to go past $600 for the first time since early 2018. 

At the same time, cryptocurrencies remained highly volatile in 2020 as well. This means that the slightest lapse in judgement could lead to losses. One of the most common reasons behind bad decisions is the trader’s emotions. Emotions can cause traders to overtrade, make impulsive decisions, enter late, take profits prematurely, or hesitate for too long to make a decision. This is why successful traders learn to stay on top of their emotions when trading cryptos. Here are some tips to help you achieve this. 

Make a Trading Plan

The first step to preventing emotions from colouring trading decisions is to follow a robust trading plan. A trading plan is like a map for your journey. For this, you need a clear idea of your goals before you start trading. Also, consider your personality traits, biases and emotions when building a trading plan. The trading plan should also include your time commitments, funds available for trading and your risk appetite.  
Based on this information, you can create a strategy that helps you identify when to open and close trades. Sticking to the plan helps take emotions out of decision making. This can be great, especially in situations when you have recently suffered a loss and may have lost confidence. On the other hand, a big win could make you overconfident. 

Do Your Research

At times, the cause of fear is the lack of knowledge. We are unsure of what to do next, which makes us feel scared. This emotion can be overcome through adequate research. Do background research of the cryptos you are interested in, look into their underlying technology and check what other traders and analysts predict about them. 
Look for all the factors that affect them, and whether there is a major event coming up that could impact crypto prices. For instance, the halving of Bitcoin is an event that has a major impact on BTC price. Also, look for cryptos that have an active community and good technology backing them. This can improve your chances of making informed decisions.  

Use a Demo Account

If you are unsure of your strategy or are trying a new indicator, a demo account can be incredibly beneficial. It allows you to trade in a simulated environment, mirroring live market conditions without the need to invest real money. This can help you learn what works and what doesn’t. You can also backtest strategies before applying them in the live market. 

Keep a Trading Journal

Some traders do not even realize that they are making emotional decisions while trading. This can be due to ignorance, ego or pride. This problem can be resolved by keeping a trading journal. In this journal, log details of all your trades. It should have records of the profits, losses, size of the trades, instruments traded, dates, expiration times and the overall performance. 

Knowing these details can help you see patterns and understand how your trading plan is performing. It can also help you identify mistakes and correct them. You will also realise whether there were any emotions involved in the trading decision.  

The high stakes nature of crypto trading makes it almost impossible to take emotions completely away from trading. But, with the right tools and learning from your mistakes, minimising them is possible. 
 
Have you learnt any important lessons when trading? Share your story with us.