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FXGT
Date:
29th Jan 2021
Author:
FXGT

How to avoid these 4 Common Cryptocurrency Trading Mistakes

Article Table of Contents:


There are a number of traits that make up a successful trader: knowledge of the market, experience, and having the right tools at your disposal. But these alone aren’t enough. In order to be successful, you must also know how to keep your emotions in check. As Warren Buffet explains, “to be a great investor, you don’t have to have a terrific IQ. What you need is the right temperament.” All emotions can have an impact on trading decisions, but the one emotion that is notorious for wreaking havoc on decision making is fear. 
Fear is a primitive human emotion. It is a biological response to perceived threats of harm or danger, and was developed as a way to protect us from situations that might cause us harm. However, fear in humans is not always limited to real threats. The psychological state of fear also encompasses a range of irrational emotions – such as phobias and anxiety – which can lead us to make similarly irrational decisions. 
The biggest fear for many traders is financial loss. Studies have shown that losing on a trade can trigger negative emotions that are twice as strong as the positive feeling of winning. Therefore, in order to keep master your emotions and take fear out of your trading decisions, you must first understand the emotion, and how to control it. 
Traders experience 4 different kinds of fear. These are:
Fear of loss can make investors fearful of executing their strategy. This inability to make fast, confident decisions can lead to delays in entry and exit, missed opportunities, and trades running on too long and accumulating losses. Of course, you must always do what you can to avoid a loss. But at the same time it’s important to remember that they are sometimes unavoidable. The best course of action is to make sure you have robust risk management in order to minimize loss as much as possible. 
The phrase Fear of Missing Out, or FOMO, first came into prominence during the tech boom of the late ‘90s. At the time, traders would hear from others about the different potential ways to earn large amounts, and they grew fearful of missing out on the next big opportunity. Thus the phrase, fear of missing out. FOMO became an even more commonly used expression once cryptocurrency trading came onto the scene. As an emotion, FOMO is more akin to greed than to fear itself. Traders are so fearful of missing out on a potentially large profit, that they ignore all glaring warnings signs for downsides. This is particularly harmful for traders who take positions when the market’s uptrend nears maturity. 
A trusted trading strategy states: “let your profits run but cut your losses short.” However, fear can lead to traders doing just the opposite. They opt for quick profits in fear that the trend will reverse, yet at the same time let their losses run on in the hope that the market will eventually turn favorable. Some even choose to run their losses in hope that the tables will turn on their fortune because they believe a paper loss is better than a realized loss. 
Sometimes traders will let their ego take over their decision-making, and being right becomes more important than making a profit. In order to be a successful long-term trader, you must also be willing to bear losses, though this goes against the mentality of a perfectionist who always feels the need to be right. However, if you expect to always be right, you are simply setting yourself up for failure.  
The first step to overcoming fear is to identify its adverse effects on your trades. Some traders will refuse to acknowledge their fear, be it due to pride or ignorance, and this can exacerbate the situation. Take the time to go through your trading journal and analyze your past trades. Was fear or any other emotion a deciding factor? 
Next, set up a trusted trading plan and stick to it. This will act as the blueprint for all your trading actions. Your plan should include available trading funds, time commitments, the risk to reward ration, and a reliable trading strategy. It should also take into account any biases, personality traits and emotions you tend to exhibit. By having a plan to stick to, you can keep your emotions in check. 

Finally, if you are just coming off a large loss, take some time off to recalibrate. It can sometimes be difficult not to feel fearful of further losses during these times. Slowly ease your way back into trading, using your demo account for practice and to build confidence as you make tweaks to your trading strategy. Start with small positions and slowly increase them.  
You may not be able to fully rid yourself of fear. But you can certainly control its effect on you and your trading decisions. Learn from your losses and hone your tactics so you can be better prepared going forward. 

TRADE WITH AN ADVANTAGE

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