Cryptocurrency Trading: What is Trading Psychology?

It does not matter whether we find ourselves in a bull or bear market. What is more important is that if you are trading, you stay safe.

Disclaimer: this is not financial or legal advice and no product mentioned, or not, is endorsed by this article.

In order to help you trade with more confidence and in better conscience, you need to know about trading psychology. Trading psychology is applicable to all types of trading, trades, and markets as well as to investments. In order to improve the quality of this article, the word, “trading” also includes investing.

What is Trading Psychology?

Glad you asked lol. This is a whole field devoted to the study of trading. It is a large field of study. Therefore this article will only go through some of the main parts in an introductory manner.

You cannot predict the market!

You cannot predict the market, so do NOT try!

First thing’s first: It is vital to know that all markets work in the same way (with some anomalies specific to that type of market). What is common is that NO market is predictable. Markets can, and DO, behave unpredictably. There is no such thing as a proPHet who always makes a proFit. No matter how strong, whether good or bad, a feeling might be, especially if it feels like a gut feeling, neither you, nor ANYONE ELSE, can predict the market! If you can somehow get this so solidly and clearly conditioned into your brain, you will already be in a great position to trade. It might seem like you cannot be wrong about a certain trade because the facts are so obvious. This is NEVER true. The market is NEVER predictable. Markets can, and do, behave the way they do simply because! Even if there seems to be a pattern, reason, or correlational connection, it does NOT automatically mean that this is the “why” for the behavior of whatever it is that you are analyzing.

With that under our belts, we can move on to feelings, AKA emotions, and their impact on trading.

Control Your Emotions: Easier Said than Done

Emotions should NEVER inform trades.

There are 2 main emotions that all traders need to know about in terms of their trading. These are negative emotions that can, and do, ruin a trade, even with professional traders. They can take traders, even professionals, into bankruptcy.

Greed and fear are the 2 main negative emotions. These emotions must be kept in check in EACH and EVERY trade. If you can manage to achieve this, then you are already moving towards being a profitable trader overall. “Overall” means exactly that! When looking at your trading over 6 months to a year, you should see you are in the green overall.

One tip in keeping your emotions in check is to use a trading journal. Another tip is to make sure that you stick to your trading rules and manage your risk!

The Essential Trading Journal

It might be easy to fool yourself into thinking that you are never going to fall into these traps of greed and fear. Regardless of your emotions, if you are serious about trading and want to make an overall profit, then keeping a trading journal is essential! To state the now “obvious” fact, this is because emotions often get the better of us because we are human and we want to get rich quick. So we are certain that this time it will be different. It seldom, if EVER is different. You can basically guarantee that if you traded on your emotions you ended in the red. That is 1 of the most valuable reasons to keep and use a trading journal correctly. It bears (pun intended) witness that your emotional trades generally end up losing you your trade and precious capital.

There are very specific details that MUST be filled out in the trading journal for EVERY trade. The date, amount, and type of trade must be recorded. This can also help for tax purposes. Then the emotions you were feeling during the trade must be recorded. You also must record the outcome of your trade. Finally any other observations, notes, or tips, must be recorded. Disclaimer, this might seem like a definitive list because of the use of the word “finally”, however only the absolutes are mentioned lol.

Next you must review your journal and analyze it regularly. This is an essential part because you will be able to pick out patterns of when you made a profit or loss. Patterns can then be used to make a trading guide that should inform every trade and your trading rules. Analyzing can also help to inform your risk tolerance and help you manage your risk better.

Trading Rules

Make and STICK to your trading rules.

This brings us to trading rules. Make and STICK to your trading rules. If you do not know what trading rules are, then you should NOT be trading! These are the rules YOU make BEFORE you start trading or after you have traded enough that you can decide and create your trading rules. Trading rules must be clear and concise and determined BEFORE trading any further than necessary to inform these rules.

Write them down on the front page of your trading journal and print them to stick on your computer or cell phone when you trade. They inform your trading. In other words they tell you when to buy, when to sell, and what stop losses you should set.

Always set stop loss orders for EVERY trade otherwise do NOT trade!

If you do not know what a stops loss order is, then you need to do your research and find out how to set them. You can only trade safely if you have set a stop loss order for every trade. This is part of your risk management.

There are many strategies that traders use and each trader has his or her level of comfort when it comes to risk. It is up to each trader to work out what works best for you. You need to take these and the type of trading you are doing, plus the length of your trades into account when creating your trading rules.

Research

Always do your own research!

Whatever you trade and whichever market you trade in and whatever platforms you use to trade with and on, respectively, DO YOUR OWN RESEARCH!

If you do NOT understand the essentials of what you are trading, the market you are trading in, and the platforms you are using to trade on and with respectively, do NOT trade!

What is a cryptocurrency, and maybe more importantly what is NOT a cryptocurrency? What is an altcoin? What is a scam and what is not a scam objectively, and maybe in trading, more importantly subjectively? What is the time frame for your trades? What is leverage? Are you able to trade with leverage responsibily? What are the advantages and disadvantages of using Binance as a trading platform for instance? What is the response time of the platform you are using to trade with, for example a PC, laptop, or cellphone? These and other essential questions need real answers. If you do not know the answers to these questions, research until you do. Then, and only then, can you start trading.

Capital Investment

Actually this is vital. You need to have enough capital to cover your trades.

Do NOT trade more than you can afford to lose!

Never go into debt, which includes borrowing, in order to trade no matter how sure you are that you know the outcome of that trade. This brings us to a full circle. While there is more to say, especially about leverage, this is a good place to stop.

Summary

Trading psychology is a vast field. As a basic introduction, this article should help you trade safer.

By keeping the fact that all markets are unpredictable in the forefront of your mind, you are off to a strong, positive start. Keep greed and fear at bay throughout your trading career. Journal and analyze your journal in order to help you improve and maintain your overall green trading goal. Trading rules and managing your risk must be part of every single trade. Do not trade more than you can afford to lose.

Do your own research. Do not trade unless you understand everything about what you are trading, how to trade, what the advantages and disadvantages are, and have answers to all the essential questions for what you are trading.

Remember regulations are another factor in trading and tax needs to be paid. These aspects and some others will have to wait for another article lol.