One of the most difficult aspects of cryptocurrency trading is the ability to manage emotions, especially when nothing goes as expected. Here are four things you can do to control emotions and make wise decisions based on facts.
Here are four ways to keep calm and focused in the market, no matter what is going on:
- Have a plan
A very basic trading plan – something that many new crypto traders forget – helps you build a foundation for a successful crypto trading business. Nobody (wise) opens a new business without a business plan. Why take chances with your investments? A detailed plan provides a simple-to-follow roadmap that helps you see things from both the short-term and long-term perspectives and helps you avoid the anxiety associated with temporary market activity. Some elements of a trading plan include:
- What is your primary goal and timeline?
- What are your short, intermediate, and long-term milestones?
- Which cryptocurrencies will you trade?
- What trading style will you use?
- How much are you willing to risk on each trade?
- What are your performance metrics and how often will you evaluate and adjust them?
- What will you do on a daily basis? Weekly? Monthly?
- Establish a daily routine
Having a routine helps prevent anxiety about what to do next, freeing your mental energy up to focus on what you should be doing. For example:
- Check your open positions and make any necessary adjustments.
- Review all cryptocurrency news from the last 24 hours.
- Go through your watchlist item by item, update key levels, and note potential trading opportunities.
- Take a closer look at potential trades and see if one is setting up for the day; if yes, set an alert or put in a limit order. Use bracket orders to initiate a stop loss and take profit orders.
- Repeat tomorrow.
This kind of regimented routine helps prevent knee-jerk reactions and removes many of the negative emotions related to the often dramatic movements of the crypto market.
Fear is the #1 driver of terrible decisions. Of course no one can be certain about what the market will do, but you can use your strategy or system as a way to gain confidence. Backtest your strategy to see how it would have performed last year and the year before. While the past is not absolutely indicative of the future, it’s a good predictor. You will also develop a better understanding of your performance metrics including your performance in a specific market environment, the maximum drawdown, the average win percent, and the average win to loss ratio. When you’re drained from a big losing streak, look to the lessons of the past. How your strategy would have performed in the past can indicate areas where you need to be more proactive, less reactive, more conservative, or bolder. In short, backtesting helps you avoid mistakes you would probably have made if you plugged your strategy into the past. You will see, for example, that a string of losses doesn’t mean failure if you hang in there; or that you shouldn’t panic and dump your assets because the current activity falls within the normal ranges and cycles.
- Start small.
“Go big or go home” is a sure way to increase anxiety. Generally, most traders trade too big for their account and risking far too much of their assets on any given trade. Essentially, if you can’t stand the thought of losing (x) amount, don’t trade (x) amount. Trade (m) or even (d) for a while. Trade at a level that will not affect you emotionally. Win, lose, it’s all part of the game except when you’re operating at a level where it’s life or death.
However, many traders are addicted (or at the very least, very attracted) to the action of trading – the rush – that trading small seems boring. This is obviously a gambling mentality, and should never be part of a professional trader mentality.
A gambler hopes for the best. A professional plans for the worst.
As a general rule, allocate no more than 2% of your assets on any given trade. Playing the game with 2% may seem boring but if you’re in it for the long run, as a way to grow your investments, it’s a number that should not cause stress.
The ability to control your emotions plays a major role in the level of success you experience in the highly volatile cryptocurrencies markets. The four tips outlined here should help you reduce any impulsive buying or panic selling, and help you grow your trading business as solidly and consistently as possible.