Crypto Trader Emotions
There have been volumes written about trading psychology, and the crypto trader emotions follow a well-known cycle that most trading participants find difficult to avoid. Understanding that markets inevitably go through cycles is the first step to controlling the roller coaster of emotions when trading cryptocurrency. It is the very emotions of traders that cause market cycles, and failing to recognize repetitive stages can dash confidence in an investment. Cryptocurrency, in particular, does not depend on any company or industry-specific data any more than stocks do – if it did, the value would be set and there would be no movement at all.
1. OPTIMISM – It begins with a feeling, some encouragement, or a positive outlook leading us to buy a bitcoin or altcoins.
2. EXCITEMENT – The prices go up and we get a little giddy over it and begin to think and hope we’ll be the subject of a true success story.
3. THRILL – Price hits all-time highs and we begin to feel like “smart money” with total confidence in our trading choices.
4. EUPHORIA – This is where gains or losses occur. We realize quick and easy profits and ignore the basic concept of risk. Some even start trading all kinds of crypto-coins to make a quick buck.
5. ANXIETY – Then price starts to show signs it’s time to take profits, but if this has never been experienced one might remain a bit greedy and hang in there believing the price will go even higher.
6. DENIAL – If the price doesn’t go to new all-time highs, we convince ourselves that it soon will and that “long-term” unrealistic outlook morphs to a near-term hope price goes back up.
7. FEAR – Confusion sets in and we lose confidence when the reality that price is taking a downtrend sets in. We probably should take a small profit and exit the trade but for some odd reason, many don’t.
8. DESPERATION – At the point where gains are lost and the chance to take out a profit has been missed, many will try to take steps to get out of the red and back in the black.
9. PANIC – Here is where emotion takes control because most feel helpless. All ideas have been exhausted, and nothing is working to bring that bottom line back into the black.
10. CAPITULATION – At this point, the goal for some is just to sell all remaining crypto and get out without any further losses. Certainly, this is the most painful emotion in the cycle and one that is hard to overcome.
11. DESPONDENCY – Now many feel like a fool, and vow never to buy crypto again – often getting angry at whoever or whatever encouraged investment in such a volatile market in the first place. Sadly, this is actually the point of maximum financial opportunity.
12. DEPRESSION – Every trader handles this stage in their own way – cuss, cry, blame…but the best course of action is to review and analyze what happened to learn things. This is the point where “real traders” are born.
13. HOPE – A real trader starts to understand this is a normal market cycle, hasn’t given up, and starts to make more informed decisions for future moves.
14. RELIEF – If the crypto-coins weren’t sold, when the market turns around and profit starts to appear once again – relief will be short-lived if lessons learned aren’t remembered going forward.
Taming Crypto Trader Emotions
So the question is: how does one tame these wild crypto trader emotions? Avoid the gut-wrenching feelings and just enjoy the roller coaster ride? Do Hodlers avoid the ups and downs? Yes, if they refrain from checking the price hourly and just remain confident their investment is long-term. But crypto trader emotions will run the gauntlet over and over if there is no sound plan for managing risk and the allure of greed is not avoided. Clearly, those without a strategy to time the market to buy low and sell high will drive the same cycle repetition. It is far better to learn to identify which stage the market is in and make informed decisions going forward.
The cryptocurrency market can push a trader through all 14 of these emotions in a day’s time! Having a long-term goal that you stick to is what seasoned veterans advise. If belief in the underlying technology is what drives your position, then hold on to that belief and there is no reason to panic or exit. Just HODL and enjoy the ride.