FOMO, FUD, Pump and Dump, lambo, This is it, gentlemen, mooning. These are all commonly known and frequently used terms in the cryptocurrency world. When you think about it, they all have one common denominator; Emotion. Fear, greed, excitement. The fear of missing out, the desire to not be a bag holder in a pump and dump scheme, the mouth watering greed of being on the back of a coin that’s mooning. All of these, and a lot of terms and ideas associated with cryptocurrency, are emotion based. Take a moment and think about the whole world of cryptocurrency from the intrigue of the illusive Satoshi Nakamoto to the drive to, well, drive a Lamborghini with all your cryptocurrency millions, this is an emotionally driven market.
Emotions are good. They’re what make us human and life without them would be pretty dull. However, emotions are antithetical to good, wise investing. Investing under the influence of emotions (IUIE) can lead to disastrous mistakes, loss of revenue and a large, negative emotional wave dropping on your head. The main thing to keep in mind when investing or trading in crypto, or any investing and trading in general, is remove emotion from the equation.
Trading is stressful, stress opens the door to all sorts of emotions coming into play. Fear, greed, doubt, envy and even anger can appear, cloud your mind and destroy a portfolio or a bag in mere minutes. Here are a few ideas to employ to keep stress in check and avoid emotional trading
It’s an old saying but it is a true saying; knowledge is power. In this case, the more you know about a coin, its past, its trends, the more power you have over the possibilities of making an emotionally driven investment or trade. Being aware of the possible pitfalls of the investment and being aware of your own common emotional mistakes can help you avoid bad decisions. Once you spend the time and gain the knowledge, you’ll begin to appreciate data over emotions and gain better control of your emotions which will lead to fewer and fewer emotional investing mistakes.
Set a Plan and Stick With It
When you start investing, decide on a plan, regardless of the market volatility, and stay with it. Maybe use a dollar cost averaging structure or set aside a fixed amount of money every month to invest and stay with it.
Only invest or trade what you can afford to lose. Remove the greed. Keep in mind the bills that need to be paid, the groceries that need to be bought and only invest what you can lose and still live happily without. Also, very important, decide on what the acceptable loss is and stay with that. Don’t keep pushing the loss line further because you “feel” good about this coin or that coin. That’s emotional investing and that’s going to lead you to disaster. Set your plan and stay with it.
Write Down Your Reasoning
Invest in a simple notebook and a decent pen and write down your reasoning for every trade or investment you make. This is going to help you take a breath and see if you’re making the investment for emotional reasons. It’s also a good way to keep track of mistakes you may have made in the past and learn from them. That is vital, learning from your mistakes. If you make the same mistake over and over again, I guarantee that it’s because you’re making investments and trades based on emotion.
Pick 2-3 high cap coins and 4-6 mid cap coins and follow them. Read about them, get as much knowledge as possible about them. Having this many coins to watch avoids you getting emotionally attached to one coin. If one of your coins is not performing according to your plan, not being emotionally attached allows you to make a sound, reasonable decision about jettisoning it and taking on a different coin.
Don’t Over Diversify
Well, if one pill helps my cold go away in 24 hours then 3 pills will make it go away in 8 hours, right? Wrong. More is not always better. Having 5-10 coins that you’re holding and trading is a good, manageable amount. You’re not losing focus, you’re not missing trends and you’re not leaving yourself open to emotional trades and investments. More coins could mean more money but, more likely, it will mean more work, loss of profits, focus and opportunity. More is a greed driven desire. Take the emotion out of it.
Keep and Eye on Bitcoin
Vox Populi, Vox Dei. The voice of the people is the voice of god. The trend of Bitcoin is the trend of the crypto market. Simple as that. Keep an eye on Bitcoin all the time, it’s going to be a strong indicator as to what the market will be doing domestically and internationally. Even if you don’t own any Bitcoin, knowing what it’s going to do, where it’s headed, is useful knowledge that applies to the entire altcoin marketplace.
People fall for the pump and dump scheme because they’re clouded by dreams of the Lambo and the get rich quick, sit back and collect my millions dream. Sure, it happens but, you know what happens more, people investing while under the influence of emotion and losing everything.
Jealousy of the guy who seems like a nobody who suddenly becomes a billionaire by investing in crypto that leads you into thinking I can do that, is dangerous. That jealousy clouds the truth of how difficult investing really is.
Believing the commercial that features the average Joe who invested and suddenly made millions overnight which makes you want his car, his house, his life, is deceptive. That’s greed talking.
Dreaming of a better life, a sweet ride, a beach house, there’s nothing wrong with those dreams. Trouble arises when you use those emotion based dreams to drive your investing. Don’t do that. Be smart, do your homework, gain the knowledge, set boundaries and remove emotion from the picture. Do that and maybe you’ll get that Lambo, but, you definitely won’t lose everything else along the way.