Cryptocurrencies are constantly in the spotlight for one reason or another. With the endless influx of information on the topic, we’re used to hearing about market trends, price predictions, or regulatory developments concerning the industry on a loop. Crypto makes the headlines every time a promising new project launches, or when there’s a development that might interest investors, such as the surge in Shiba Inu coin price and other dog-themed meme coins.
However, the narrative usually revolves around price movements and the gains and losses they produce. Everyone seems to be so caught up in spotting bearish and bullish signals and finding the next big thing in crypto that the conversation rarely goes deeper than that. So, despite crypto being such a broad and multifaceted subject, we rarely hear about issues like the emotional implications that come with trading digital currencies.
That’s rather unfortunate considering emotions play a big role in crypto investments. Therefore, looking at the psychology behind crypto trading and learning about the emotions that influence traders’ behavior can be quite fascinating and reveal all sorts of interesting insights.
From elation to desperation and back again
With crypto being such a volatile and fast-paced market, traders’ and investors’ emotions are just as fickle, going from one extreme to another in a short period of time as they follow the ebb and flow of crypto values. A price rise usually triggers waves of enthusiasm among participants, while declining values give way to confusion, fear, or even panic.
There’s no doubt that crypto trading is an intense and mentally exhausting activity and can take investors through the whole gamut of affective states. However, the feelings that traders experience most often usually fall into one of the following categories:
Enthusiasm
When prices go up, traders naturally start feeling more confident and optimistic about the market. A surge in value can signal the beginning of a bullish run, so it’s understandable that traders are excited about the potential gains they could make if they make the right moves at the right time. Therefore, price spikes come with a significant rise in trading activity as investors are looking to capitalize on the trend.
Fear of missing out (FOMO)
There are a lot of things happening in the crypto space at any given moment. Given the constant stream of events and developments to keep track of, traders often feel like they’re falling behind and might be missing out on important investment opportunities while others are making gains. That’s FOMO – short for fear of missing out – in action.
FOMO is a widespread psychological phenomenon that can affect anyone, but it’s particularly prevalent among crypto traders due to the extreme volatility and unpredictability of the market and the speculation and hype surrounding digital currencies. This hard-to-escape sensation of being constantly behind creates urgency and prompts people to act quickly in order to catch up. As a result, traders are trapped in a never-ending cycle of battling feelings of restlessness, stress, anxiety and confusion.
Fear, uncertainty, and doubt (FUD)
Crypto is also an environment where negative news and information, real or false, are constantly circulated with the purpose or the unintentional effect of shaking people’s confidence and making them wary of investing in digital currencies.
These can take the form of exaggerated headlines warning of a potential market downfall, rumors about major sell-offs that might destabilize the market, influential social media posts suggesting a project might be a scam, and so on. Whether this is done deliberately or not, the outcome is the spreading of pessimism and misinformation. FUD can trigger panic selling, leading to sharp price drops and amplified market volatility.
Greed
The potential for quick and consistent gains is what draws most people to crypto. Stories of traders becoming millionaires overnight by investing in crypto at the right time have served as a magnet for newcomers since the beginning of the cryptocurrency market. However, the chase for profits can quickly turn into greed if taken too far. When traders become greedy and pursue larger returns, they’re more likely to make rash decisions and risky moves that can cause them to lose all their funds fast.
Keeping emotions in check while trading crypto
It’s perfectly normal for high-risk, high-reward investments like crypto to be fraught with emotions. However, one should never let fleeting feelings run the show in trading. As a trader, you need to listen to your reason and not your heart because emotional trading can get you into a lot of trouble. It can prompt you to make impulsive decisions that can end in disaster or worsen losses, or encourage herd mentality where you mimic what others are doing instead of thinking for yourself.
Moreover, if you can’t control your emotions while trading, you’re bound to spend most of your time stressing out about market movements and struggle with anxiety and other mental health issues. So, here are a few things you can do to keep your emotions in check and avoid all the drama:
- Have a clear trading plan – establishing clear goals and rules related to your trading activity will make you more disciplined and minimize the impact of emotions on your decisions.
- Apply sound risk management strategies – from diversification and limiting crypto trades to a small percentage of your portfolio to setting stop-loss and take-profit orders, there are many methods you can employ to reduce risks.
- Think long-term – instead of obsessing over short-term price movements and chasing quick profits, focus on a longer time horizon when planning your trades.
- Think before you act – when emotions threaten to take over, pause and take some time to cool off.
- Practice mental discipline – learn to control your emotions by practicing mindfulness, meditation, breathing exercises, and other techniques that might help in this respect.
- Limit exposure to hype – limit your intake of market news and unfollow media outlets that promote FOMO and FUD, relying only on reputable and trustworthy sources to stay informed.
In the hectic crypto world, knowing how to manage emotional responses is key to ensuring safe and successful trades. By cultivating a strong mindset and becoming a disciplined investor, you can get closer to achieving your goals.
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