TRADING PSYCHOLOGY
Why mentality is the pivotal aspect in investing
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There is a widespread preconception, originated by ones not quite keen on stock market — trading purportedly calls for mathematical mindset and acquaintance with basic (and complex) algebraic formulas. The thesis is so oftenly met among the crowds that it literally frightens people who had the desire to attempt this technique. Alas, those are tricked by a complicating and rather archaic idea.
Indeed, the analytical mindset is the core aspect of (notably) appropriate investments. Apparently, while you carry out a trading strategy, it should not be based on pure intuitive predictions. Every factorial, every digit is grounded on a specific logical pattern, which can be indicated with a sharp mathematical eye.
Still, it is important to highlight that trading views and calculations on the exchanges, especially on crypto ones, are simplified in this day and age. Apart from the numerous indicators, the stock exchanges are adapted to the nuances of informational society, meaning that they clearly represent the state-of-things via sharing information.
Market is essential to be seen through, not at.
However, this statement is not confined solely to deep analysis — it also discloses our mentality and subjective perspective. Alas, our emotions are often neglected while trading, and this is a critical mistake.
The previous statement may sound rather pretentious, but let’s face the music — which walk of life does not require pure emotional control from us? The necessity of mental stability in our bustling world is difficult to exaggerate, yet the path to emotional control is full of obstacles. But why does crypto trading stand out by this criteria?
Since the introduction of Bitcoin, the absolutely new market emerged, bringing alongside a great bunch of novelties and discoveries. This tendency did not leave human psychology behind. Crypto popularisation altered our behaviourism dramatically, but the aspects it impacted spurred pioneering cognitive issues to be born. What is more, ones are only met in digital trading, hence they can not be regarded in a traditional meaning. The genesis of them is unique, and so is their classification.
Market Volatility
The notorious crypto volatility is the core of blockchain-based investment. Being the natural characteristic of crypto currency, it can be either beneficial or dangerous. The significant fluctuations of prices, which occur in short periods, stimulates reckless decisions. The immediate desire to enter the deal amidst the pump or dump of the asset can be far from rational. Panic, ambitions, fear of missing out the allegedly profitable chance (FOMO, which we’ll analyse below) can play a bad joke and turn out to be a complete disappointment.
How to master it. Taking impulsive decisions is indeed a jeopardising factor for your crypto portfolio. But rash steps originate not only from excessive emotionality — their core lies in the lack of strategic planning and meticulous estimates. That’s where the mentioned above importance of analysis enters the stage — but not from the mathematical, but from a mental point of view. Conscious accession of the risks, consistent planning, and meticulous research — these are the pillars of levelling your emotions and fears. Sometimes, being cold-headed is the only way to solve the issue, and the recent example is not an exclusion.
Two pivotal hallmarks of crypto behaviourism are FOMO (Fear Of Missing Out), and FUD (Fear, Uncertainty, and Doubt). While the latter one is apparent to understand, the first one discloses a unique type of behaviour, which was emphasised with the skyrocketing popularity on social media. Accordingly, Fear Of Missing Out refers to a literal fear of skipping part in certain online activity, regardless of how promising this activity actually is. This cognitive phenomena is mostly connected with Airdrops and Retrodrops — crypto community initiatives in which tokens, coins or other benefits are granted for a list of tasks. As an origin of “easy money”, they tend to be actively involved by digital investors. However, not all airdrops are credible, given the overwhelming number of crypto scams on the web. For a great bunch of them, “free cheese only in a mousetrap” rule perfectly fits, and their ambitious participants often find such airdrops a complete waste of time in the best case.
Withstanding FOMO and FUD. The best way to eliminate these cognitive errors is to get rid of them. But this method does not sound easy — it requires neat research and scepticism towards every activity you come across. Choose only promising or time-tested projects to take part in. It is also crucial to highlight the beneficial aspect of the airdrops and initial coin offerings in order to estimate your time properly. My personal recommendation: get involved in the ecosystems of products — their rewards are systematically more decent. Just like WhiteBIT’s retrodrop, which recently had its snapshot, you should stick to similarly robust options and do not get tempted by every “easy profits” opportunity in the market.
Remarkably, FOMO and FUD are frequently experienced in previously mentioned market fluctuations, which make them quite a dangerous fusion.
This phrase is ironically referred to the beginners in cryptorealm who make rash decisions based not on the research but on trends and ordinary tips. Their mental state is not adapted to the stressful factors, and the bits and pieces of rational mindset is outweighed by impulsive and unprofessional decisions. By and large, such beginners often become the originators of tarnished crypto reputation due to the fact that they do not prioritise learning and self-development.
“Buy at high, sell at low” is a personificated compilation of all crypto mentality factors we focused our attention on. The meticulous analysis and cold head would not enhance this mindset — in fact, only aspiration to self-improvement and constant learning are only guarantees of crypto success.
