Buying and selling bitcoins may be a very emotional process. It’s a fast-paced environment with numerous deals and purchases to be made. Short-term day trading is one way that some people try to profit from the volatility of bitcoin values. Others are interested in making long-term investments and hoping that the cryptocurrencies they purchase will serve as a store of value.
All of this adds to the enjoyment of purchasing and trading cryptocurrencies, which may be lucrative. However, it can be associated with FOMO and FUD, raising the danger of making judgments based on emotion rather than facts. It’s critical to keep emotions in check in order to minimize risk and prevent losing money in the bitcoin market. What follows is a list of suggestions that will help you control your emotions while trading.
1. Make Trading Guidelines
Consider making some trading guidelines to assist you in getting out of a funk when emotions take over. Of course, different rules apply to various investors based on their trading techniques and objectives, but you can use some general guidelines in a variety of situations. Here are some guidelines to consider adding to your trading checklist:
- Create a stop-loss order.
- Establish strict risk management guidelines for the amount of money you trade on a daily or monthly basis.
- Before putting a trading strategy into action, establish strategy guidelines.
- When entering a trade, try to predict multiple probable moves so you can reply quickly and confidently.
2. Backtest Your Trading Strategy
If we take a step back and ask ourselves why we get so emotional in the markets, it becomes evident that fear and uncertainty are the root causes. While we can never predict what the market will do, we can make efforts to ensure that our reactions to an unpredictable environment do not overwhelm us. And one of the most effective methods to do so is to establish trust in our trading strategy or system.
So, if you’re just starting off, how would you obtain this vital confidence? If you’re a new trader, you probably don’t have enough expertise with your approach to feel secure about executing trades. This dilemma, however, has a workable solution.
Backtesting your plan will allow you to see how it has performed in the past. Backtesting your strategy will give you a good understanding of your strategy metrics. You can evaluate how your trades have performed in a specific market environment, the average win percent, the average win to loss ratio, the maximum drawdown, and the string of winning and losing trades.
Keep in mind that past results are not always indicative of future results. When you’re emotionally fatigued from a losing streak or a losing phase, knowing these metrics will come in handy.
3. Select the Best Trading Exchange
Choosing the right platform entails determining which one will assist you in achieving your objectives based on your strategy. Some offer hundreds of coins for sale or exchange, while others only have a handful. Some platforms allow you to convert your cryptocurrency to fiat money, while others do not. Some exchanges allow you to buy cryptocurrencies with fiat currency, while others do not. It’s critical to figure out which option is best for you. Here are some things to think about:
Location: Using a local exchange will help you meet legal obligations. It’s also simpler to use your bank to make deposits or withdrawals in your local fiat currency.
Available coins and trade pairs: Examine the exchange you intend to employ. What coins are there to choose from? What are the different trading pairs? Is it possible to acquire cryptocurrencies using a fiat money deposit, or do you have to use another cryptocurrency, such as Bitcoin? If you’re seeking a long-term investment, an essential pairings exchange is the most excellent option. On the other hand, if you want to day trade and speculate on the market, you’ll need a platform with extensive trading features.
Platform security: This aspect is essential to consider. What kind of login process does the website employ? The more challenging the requirements, the better. Check to see if the platform is doing everything it can to keep your money safe from hackers. Look for platform-related news and any reported threats on the internet. Another security aspect is access to the exchange’s support team, which allows you to contact them if something goes wrong or you require assistance.
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4. Reduce The Size Of Your Position
Reducing the size of your overall position is another approach to help keep your emotions in check. Most traders, on average, trade with too large a size in respect to their whole account. As a result, they frequently take on too much risk in any particular trade. Naturally, this will have an impact on your mental state. You get connected to your position because there is too much riding on it, and you can’t bear the notion of losing it.
Trading at a level that will not influence you is one technique to overcome this psychological weight. It shouldn’t make a difference whether you win or lose on the trade. It’s only one transaction. However, many traders are so drawn to the thrill of trading that the idea of trading small does not appeal to them.
They need to get their fix in the market, and the only way to do so is to put a significant amount of money on the line in any given deal. A competent trader understands that in order to win in the market, they must manage risk and trade in modest increments.
The ability to control your emotions will play a key influence in your success or failure in the markets, even though it is not immediately apparent to many inexperienced cryptocurrency traders. As a result, you should devote as much time as possible to this area of trading. And maybe you will take some of these suggestions to heart and move forward with putting the ideas offered here into action for your own advantage.