When investing in crypto, you must learn to control your emotions
If you’re reading this post, you’re likely familiar with cryptocurrency. Perhaps you’ve heard about it from friends or on the news, and after reading all those success stories about those who made millions from investing in crypto, you’ve decided to give it a try yourself. However, once you’ve got into it, you’ve realized things aren’t as straightforward as they seem. Cryptocurrencies are volatile in nature, and you can’t invest and expect to get rich overnight. That’s simply not how things work. To trade successfully, you must get as educated as possible. This means choosing the crypto you want to invest in and learning everything about it. For instance, Ethereum is a good investment, but just as with any other cryptos, you must do your research before trading it. It’s vital to learn crucial information, such as Ethereum price, uses, and the right way to invest in it.
There’s an essential rule to follow when investing in crypto, and that is to make smart moves. You need to master some essential skills in the crypto market, like evaluating fundamentals in context and performing technical analysis to figure out the entry and exit levels.
However, there’s something just as crucial that most investors – especially newbies- may overlook: managing your emotions. If you don’t learn to do this, you can make irrational trades, abandon trading plans, and even go beyond established risk. To execute successful trading strategies, it’s paramount to strengthen your discipline levels and think fast but thoughtfully.
What happens when FOMO and crypto meet?
FOMO has become more common as social media gained more and more popularity. It is an acronym for fear of missing out, which refers to the feelings of anxiety you get when thinking you may miss a unique opportunity. FOMO can be healthy when it motivates you to seek new experiences but can quickly turn into something negative when it starts affecting your life significantly.
The fear of missing out is also present when investing in crypto, and in most cases, it causes people to take impulsive actions. Sometimes, a particular asset experiences a dramatic increase, and when this happens, many crypto investors worry that they will lose the opportunity to make significant profits. During these times, the FOMO in the crypto community is very high. People end up buying the asset at the wrong time and, thus, suffer losses. FOMO can happen to anyone, but avoiding this emotional experience is definitely possible if you create an investment plan. We’ll teach you how to take control of your emotions later in the article, but first, let’s discuss the other emotions that influence your trading game.
Because of greed, traders often go beyond the established risk/reward ratio. When looking at trades that may represent outsized winners – as opposed to your previous moves- greed may influence you to get a hold over your strategy. Consequently, excessive losses will wipe out the gains accumulated over time.
This is often a great feeling in life, but not when it comes to crypto. Wanting to see your trading plan succeed is great, but chasing feelings of excitement is basically letting the wrong motivation guide you in the process. This will only lead to more losses than gains, and you’ll end up going down a deep hole by trying to make up for all the profits you’ve lost.
Like greed, overconfidence shouldn’t be a part of your trading game, as it will do very little for you when trying to make profits. You may be on the good run, but that doesn’t mean you shouldn’t be careful anymore. If you become overconfident, you’ll go for bigger wins and place larger trades. But you should still stick to a plan and make smart moves instead of being convinced you will always succeed.
How can you manage risks and take emotions out of investing?
Risk management is necessary for crypto because it saves your portfolio from significant damage and provides calculative returns. While crypto comes with benefits, it also poses risks. However, you can mitigate them through tools like technical and fundamental analysis.
The truth is, controlling emotions it’s not possible. However, what you can do is reduce their impact on your trading activity.
Reduce your trade size
You can reduce the emotional intensity of your trades by decreasing your trade size. Set a rule for yourself not to trade over a specific percentage of your account’s capital. This will reduce the weight of your individual moves, and that way, you won’t be afraid of what’s happening in the market after your decisions. What’s more, it’s always helpful to have some resources left in your account in case you need funding to prevent a margin call.
Stick to your trading strategy
Once you develop a strategy, it’s essential to stick to it and not let some successful moves convince you to risk more capital than you initially established. Keep in mind it takes time until a strategy gets validated or invalidated. If you break from your strategy, you can’t know whether your path was the right one. And if there are losses, you’ll likely want to change your plan again.
This will make you place trades erratically, which will only have negative effects. Now, this doesn’t mean you should never change trading strategies. However, it’s best to do it only when market conditions change and not because some of your trades weren’t successful.
What is your relationship with failure? If you see failure as something wrong, you will not likely survive in the crypto game. It’s essential to acknowledge that trading doesn’t only involve gains but also losses. You aren’t the only one who suffers them; most traders do! In fact, the most successful traders are likely to win six times out of ten.
Expecting to win consistently is unrealistic and will only lose to disappointment. You may end up making decisions that weren’t part of your plan in the beginning. To avoid this, you should never forget that suffering losses is normal in crypto, and it isn’t an indicator of how successful you can be in the long run.
The bottom line
Investing in crypto is exciting and can turn out to be significantly profitable. However, it also involves risks and an emotional rollercoaster. But you can take control over your emotions by sticking to your strategy and accepting that you won’t always win, and that’s completely fine. Mindset and discipline matter a lot when investing in crypto, so if you want to succeed, it’s essential to work on these things first.