Bitcoin and Trading Psychology

bitcoin trading psychology
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Every time you place a new Bitcoin trade, you’re being motivated by powerful internal belief systems. When you press the buy or sell button, it speaks volumes about your desires and intrinsic estimation of self-worth.

When you hear bullish (bearish) news, your internal financial and self-esteem conditioning can even overreact, causing you to trade too aggressively or timidly. A basic understanding of bitcoin trading psychology can help keep your trading and investing regimen on an even keel.

What is Trading Psychology Anyway?

Trading psychology is your internal state of self-awareness, self-discipline, self-worth, rationality, and accountability that impacts all of your trading and investing tasks and decisions, such as:

  • Market analysis (technical and/or fundamental)
  • Position sizing and account risk
  • Loss control
  • Profit-taking
  • Evaluation of trading results

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Deep Psychological Issues Cause Chaos 

If you have unresolved psychological issues, each of the above trading system components will be negatively affected in some way. For example, you might filter your chart analysis through the lens of your poor self-esteem. This can result in your taking one bad trade setup after another, thus affirming your internal imagery of worthlessness.

A need to support your family may cause you to put on trades that are three times larger than prudent risk control dictates. Perhaps you’re struggling with serious, unresolved psychological issues that can wreak havoc on your long-term Bitcoin trading plan, causing inappropriate trading decisions that cost you money.

For example, perhaps you consistently fail to take big, windfall profits. Instead of booking a 10, 20 or even 50- percent Bitcoin gain, you may allow your profits to slip away in the hopes that prices continue to increase. You may even ride a big winner down into the gutter, earning an unsightly, needless loss. 

Help is Available

If your Bitcoin trading suffers from such self-sabotaging actions, you need to stop trading and get to the root of the problem. Your success as a Bitcoin trader depends on keeping your emotions of fear and greed under control. Any other psychological issues that cause you to stray from your well-thought-out trading regimen must also be addressed. There are actual trader psychologists who can assist you via a variety of books, online resources and individual trader counseling. 

Some traders are actually gamblers without the ability to stop, but they cannot or will not admit it to themselves. Even when their spouse or friends tell them they have a serious problem, they will deny its reality. Show them a chart of their real-world Bitcoin trading equity curve (usually a negative, 45-degree angle slope, or worse), and they’ll give you a hundred reasons why things aren’t so bad. Their next big winner is coming soon. Don’t even bother to mention anything about Bitcoin trading psychology to a gambler. Save your breath.

Gamblers in Bitcoin or any other market will usually lose everything before they admit they need help.

Self-Discipline and Bitcoin Trading Success

Bitcoin is an extremely volatile market. Market volatility itself is a mass expression of fear and/or greed among traders. If you have little control over your emotions, you’re likely to make irrational trading decisions. And you’ll likely make them at the most inopportune times.

For example, from November 14 thru December 15, 2018, Bitcoin plunged by 50 percent. Financial news headlines helped reinforce the pain caused by Bitcoin’s severe bear market. Let’s say that you were in cash on the 15th and had neither a new buy nor sell-short signal flashing. Most of the time, you had the self-discipline needed to stick to your trading signals and master trade plan. The rational choice would have been to patiently wait for a new, valid trading signal.

Fear of Missing Out, Need to Recover Losses

However, you’d lost money on your last few Bitcoin trades. You didn’t want to let the profit opportunity offered (but not guaranteed) by the coin’s downtrend get away without jumping in. After all, since the news was so horribly bearish, going short was surely the wise choice? Maybe Bitcoin would’ve kept dropping, allowing you to make up all of your recent losses, and then some. The fear of missing out on a potential 10 or 20 percent decline (and without you onboard for the ride) overpowered your completely rational fear of losing big on a potential short-covering rally.

If that hypothetical scenario describes your own internal belief system (fear of missing out, the need to recover losses), your chances of achieving Bitcoin trading and investing success are slim to none. By allowing your emotions and psychological needs to override your rational market analysis, you sabotage your otherwise sound trading plan. You may have the best mechanical trading system in the world. However, if you can’t discipline yourself to take every trade without your psychological hangups getting in the way, you might as well call it quits now. You’ll save yourself a fortune in needless losses. You might even save your marriage, family finances, and sanity, too.

Logic and Fantasy

Here’s another example of your internal beliefs and desires interfering with a proper trading mindset. Let’s say that your family finances are in rough shape. You were laid off from a good job two years ago. You’re only bringing in a third of the monthly cash needed to support your household. You’ve funded your crypto account with $25,000 (most of your savings) and have placed an inordinate amount of hope on your ability to pocket 100 percent in trading gains every year.

What’s wrong with that picture, you may ask? Well, for starters, it may take you several years to become a consistently profitable Bitcoin trader. You’ll likely lose money for a few years before everything begins to click. Even some pro traders admit to blowing up several trading accounts before attaining ongoing profitability. Some well-known hedge funds (some of which trade crypto) only sport average annual gains of 10-15 percent per year.

Do or Die Mindset

And yet, you’re planning to shoot for 100 percent gains. Why? Because you have to, or else risk going bankrupt as your savings evaporate. Trading is stressful enough even with a great system and risk control helping you bring in the bacon. But to place a burden of “I must make 100 percent trading gains per year” on your shoulders is not only unwise, it’s also psychologically dangerous and sets you up for potentially catastrophic trading losses.

Lighten Up

It’s essential to have hope, but when hope morphs into fantasy, that’s when a Bitcoin trader needs some intervention. Choose your therapist wisely, but don’t make the same mistake as the parents of Rodney Dangerfield:

When I was young, my parents sent me to a child psychologist. I saw him for four years. The poor kid couldn’t help me at all!

Nurturing a Healthy Bitcoin Trading Psychology

  • Shut off all but essential financial markets news and social media when trading.
  • Trade a proven mechanical system, and not hot tips or opinions.
  • Strictly control your per-trade account risk. Keep it at one or two percent, maximum.
  • Trade one market, one system, and only one time frame to achieve consistent results.
  • Maintain realistic expectations for your Bitcoin trading activities.
  • Don’t trade at times of personal, family or business crisis.
  • Find a good trading psychology mentor and study their books and videos.
  • Seek professional help or intervention with unresolved psychological traumas and issues.
  • Get plenty of exercise, and avoid junk food. Eliminate tobacco use if possible.
  • If you have drug or alcohol issues, stop trading right now and get immediate help.
  • Have a fulfilling life apart from trading, keep some safe psychological distance.
  • Do not equate trading success or failure with your value as a person.

Trading psychology is a complex, highly nuanced field of study. However, don’t let that scare you away from investigating the many free online trading psychology resources. A few small adjustments in your internal belief system may be all you need to elevate your Bitcoin trading performance. 

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