In the world of crypto trading psychology, emotion is not a detail; it is the leading cause of trading losses. Even though traders think about technical indicators or fundamental news, they pay little attention to crypto trading emotion when it comes to deciding.
As Mark Douglas argues in Trading in the Zone, trading successfully is less about predicting markets than it is mastering your mind. In crypto, when prices gyrate, and they do gyrate, your mind can be clouded by emotions, leading to decisions based on FOMO (Fear of Missing Out), greed, or fear instead of rational and logical planning.
For example, during the 2021 Dogecoin mania, and retail traders, many with very little experience, started purchasing Dogecoin when the price surged above $0.70, convinced that this "meme coin" would never go back.
FOMO leads traders to get into trades at poor prices after seeing others make money, often in a speculative manner. In 2021, for example, Dogecoin and many other meme coins blasted off on hype and social media before collapsing as soon as the buying spree ended.
This is FOMO's opposite. Bad news, real or imagined, causes traders to panic sell. For example, crypto was gripped by severe FUD after the collapse of the FTX exchange in 2022, leading to significant market sell-offs of even fundamentally sound assets.
Within weeks, Dogecoin crashed below $0.20, leaving many bag-holders holding heavy losses. Similarly, many Bitcoin investors, during the run-up to $69,000 at the end of 2021, bought into Bitcoin late, only to be hit with a brutal 70%+ drawdown in 2022.
These real-world examples illustrate that emotion is not a "soft" issue, but a hard factor in the complete equation that makes a determination. FOMO leads traders to get into trades at poor prices after seeing others make money, often in a speculative manner. In 2021, for example, Dogecoin and many other meme coins blasted off on hype and social media before collapsing as soon as the buying spree ended.
Taking more than one position without any allocation logic is called overtrading, and many traders do this, chasing boredom, anxiety, or to feel like they are in control of wanting to trade more, for example, rebalancing through the expensive add volume of fees and slippage while Ethereum is pulling back.
Conclusion
Emotional control is not an optional skill for crypto traders; it's the foundation of success. Even the best technical strategy will fall flat if it is applied emotionally. If you’re committed to improving your trading results, then start forming better habits today. Journal your trades. Record and monitor your emotions. Use tried and tested psychology models.
If you’d like to hear more about remaining emotionally disciplined in crypto trading and having the tools for managing your trading psychology, subscribe to btcdana.com and keep your head above water in your trading journey.
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