Cryptocurrency trading is gaining popularity among all investors, and nowadays, the number of traders keep on escalating day by day. Since trades are increasing, there is a need to know certain information for good returns, which can be overcoming emotions and managing risk to have certainty in the portfolio. Buying and selling of digital assets, which provide both opportunities and risk, might be managed with a definite method, including controlling of emotion also. Here, we are discussing the same in detail.
Placing an order or settling the orders based on personal emotion is termed as emotional trading. It may help sometimes, but mostly it ruins the trade. Therefore it is best to eliminate such courses of behavior. However, it is not easy to eliminate. You may try a few steps to avoid or minimize the emotions prevailing during trading. There are few emotions that are discussed here.
Fear: This is the emotion that enters our mind- the fear of losing money during trading. This is the most frequent emotion which occurs across the trading. You can minimize this if you have the proper trade plan and trade entry criteria. If the entry point is precise, then it decreases the fear in trade.
Greed: Greed is a human behavior, and it can be minimized with the help of TP (Take Profit). There must be a target set while trading, and if the target is achieved, you should stick with that as there are possibilities that the market goes against the prevailing direction. You can stick to your trading plan to diminish such emotion.
Hope: Generally, it is the negative hope as that traps the trader, as they think that the market price will come in their favor after a certain point. Having this hope in trade, the traders keep losing money. Therefore, it is better to avoid having hope unless you have good trade entry and exit criteria or logical reasons.
Excitement: This is also considered as bad emotion as it brings the overwhelming joy and forces the trader to initiate more positions in the winning trades, and doing so, traders may get trapped if the market reverses even a bit. This excitement changes into nervousness. Therefore, you should have target-oriented trading only to evade this emotion. Excitement is worth only after settling the position and the profit generated thereafter.
Boredom: It happens when the traders do not have the proper focus on trading as we all know that trading is a kind of business, not entertainment. You should inculcate the virtues of a good focus on trading activities like watching the news, watching the market, and scanning the trade opportunities, among others. You can engage yourself in trading activities to escape boredom.
Nervousness: This is one of the bad emotions, which plays an important role to drag the traders out of the trading plan. Such nervousness deteriorates the overall profitability, also as being trapped in this emotion, induces traders to place early orders or close the positions at the wrong time. You can try to stick with position closing criteria only to shun nervousness.
Frustration: This is a bad negative behavior which often causes a trading mistake and leads to loss or lesser profits in the cryptocurrency trading. Frustration can happen by generating smaller profits or continuous wrong trades. Such emotions can be minimized with the help of trade mentors, guides, and a good trading plan.
Risk management is a crucial process to be adopted by any traders, including cryptocurrency traders, as it saves the portfolio from major damage and provides the calculative returns also. There are so many risks involved in cryptocurrency trading like volatile risk, price hype risk, and so on. You can manage the risk with the assistance of risk aversion tools like fundamental and technical analysis.
Before buying any cryptocurrency through the exchange, you need to analyze the price of that digital assets. You should identify whether the market is bullish or bearish, and accordingly, you should act to go for buy with a bullish or sell with a bearish trend. Entering the price must be calculated with the help of tools like pivot points, support and resistance, moving averages, or relative strength index. After finding the price entry, the next step is to map the profit margin so you should calculate the take profit point (TP). Additionally, you need to take care of the position, which can be reduced or increased as per market situation and trade plan. You have to update yourself with the cryptocurrency news, which may impact the price of your trading assets. All these factors assist you in risk management.
With the above points, you may have generated ideas about the human emotions involved in the trading as well as risk. Also, some light was shed on the risk aversion methods. Since cryptocurrency is immensely volatile, it attracts huge losses while trading with margin. You need to learn to control your emotions arising during the trading session. Above all, emotional trading needs to be condensed for good trading to follow a specific and definite trading plan.