There are two main approaches to the psychology of the cryptocurrency market, although they are closely related to each other. There is a general picture related to the psychology of the market as a whole, and there is an individual perspective, often called trader psychology.
The thought processes and subsequent trading decisions of each trader affect the market movement and form the basis for the psychology of the cryptocurrency market, which is a group behavior that is the result of the actions of all individual traders combined.
In this post, we will look at how the thoughts and feelings of a crypto trader can affect his trading success and how his actions can be influenced by the psychology of the entire crypto market.
Crypto Trading: A Zero-Sum Game
Not all traders think the same way, which allows the market to exist and function. Some market participants will decide to buy with the same market data, and some will choose to sell. Each of them is guided by their motives and time frames.
However, just because two traders are on opposite sides of a trade, they are not necessarily opposing each other in a zero-sum game where one is the winner, and the other is the loser. They may have different but complementary goals. For example, a seller can be a day trader who seeks to make a quick profit by selling a crypto asset at a price higher than the one he bought it and within a brief period. At the same time, the buyer can HODL, expecting to hold the asset for the next few years, and therefore he is not concerned about short-term intraday price fluctuations.
In the case when we have a zero-sum game, the goals and circumstances of both traders coincide. For example, when two swing traders open a position on the same coin at the same time.
When you enter the market, your goal is to ensure that your trading psychology is one step ahead of the psychology of the cryptocurrency market. This means that you must keep your feelings under control, even when the market makes a sharp turn, which is common in the cryptocurrency arena. Most traders follow the crowd and either cannot develop a clear strategy in advance or follow it because emotions get in the way.
Psychology of the Cryptocurrency Market
To understand how the psychology of the cryptocurrency market functions, you can turn to various forms of analysis related to news, market sentiment, price bias analysis, and so on. However, all this data will help you only in one case. There is often an echo chamber effect in the crypto community when the same opinions are constantly amplified, which has a considerable impact on the activity of the cryptocurrency market. Take, for example, the excitement that arises for a wide range of new altcoins in specific categories with each new “altcoin season”. Unlike traditional finance, the barriers to entry for new coins are much lower than for a company entering the stock market. New ideas can take root faster, but at the same time, innovations can disappear like lightning.
Control over Your Crypto-Thinking
With sharp price fluctuations associated with cryptocurrency trading, it cannot be easy to remain calm. The trick is to trust your research, experience, insight, and training. The most important thing is your crypto-way of thinking — the ability to use your emotions to your advantage and not let them work against you.
In a moment of extreme volatility, instead of being swept away, if you can control your feelings, you will be able to make a rational, smart move, while most market participants act on emotions caused by shocks.
The psychology of crypto trading is based on the fight against the primary emotional triggers — fear and greed. The high level of volatility associated with cryptocurrency trading creates an atmosphere of pressure that can confuse even the most zen-like investor.
The harsh truth is that you will never get rid of your emotions when trading cryptocurrencies, but this is entirely normal if you learn to recognize and manage them.
Understand the risk associated with each trade, calculate the worst-case scenario as much as possible, and decide whether the reward outweighs the risk. If the deal turns against you, keep your mind clear and reduce your losses.
Automated Investing: Thinking in Trading
The psychology of crypto trading is how our thoughts and feelings affect what we do on the stock exchange. One of the best ways to avoid the influence of your feelings on trading is to eliminate emotions from the equation. If you do not trust yourself not to interfere with feelings in your investments, then one of the solutions is to trade without any human emotions at all, using an algorithmic cryptocurrency trading system.
Such a system as the automated multi-investment platform Intelfin is designed for everyone who wants to profit from the highly profitable digital asset markets. The Intelfin arbitrage robot scans more than 20 exchanges simultaneously, 24 hours a day, and finds the best possible price at which you can automatically buy and sell, constantly bringing you the maximum potential profit from each transaction.
Crypto-arbitrage is excellent during periods of high market volatility, as it provides a valuable hedging opportunity since price discrepancies will continue with the same constancy even in a collapsing market.
As we can see, a fully automated system makes it possible to step back and make sure that the strategy you choose is implemented regardless of how you feel. However, if you are going to trade manually, you should maintain strict control over your own emotions and understand how price movements affect the psychology of all other market participants.
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