Becoming A Deadly Trader
Your new career awaits you
Chapter 6
Trading Psychology
I’ve been a trader for long enough to know how most people think while trading the market. You see, most people experience similar thinking patterns and emotions as they trade the markets, and we can learn many important things from the differences in the way losing traders think and the way winning traders think.
I would be lying to you if I said that success trading crypto depends entirely on the system or strategy you use, because it doesn’t. It actually depends mostly on your mindset and on how you think about and react to the market. Most crypto websites or gurus try to sell some golden indicator or robot-based trading system and won’t tell you this. They want you to believe that you can make money in the markets simply by buying their trading product. I prefer to tell people the truth, and the truth is that having an effective and clear trading strategy is very important, but it’s only one piece of the pie. The other portion of the pie is managing your trades correctly and managing your emotions correctly. If you don’t do these two things, you’ll never make money in the markets over the long-term.
Why Most Traders Lose Money
You’ve probably heard that most people who attempt trading crypto end up losing money. There’s a good reason for this, and the reason is primarily that most people think about trading in the wrong light. Most people come into the markets with unrealistic expectations, such as thinking they are going to quit their jobs after a month of trading or thinking they are going to turn $1,000 into $100,000 in a few months. These unrealistic expectations work to foster an account-destroying trading mindset in most traders because they feel too much pressure or “need” to make money in the markets. When you begin trading with this “need” or pressure to make money, you inevitably end up trading emotionally, which is the fastest way to lose your money.
What Emotions You Should Watch in Yourself While Trading
At times of world crisis there is always a fluster in the markets. Empires are both built and erased when markets swing. A lot of pro traders stress the importance of having strategies when it comes to making money in the markets, but he truth is no strategy can protect you from market volatility. Your success when trading will be more dependent on your mindset and how you react to movements in the market. Emotional management is extremely important and often overlooked by the average trader. When you are reacting to the market with emotions rather than technical analysis you are putting yourself at a disadvantage. Let’s take a look at some of the most common emotions to watch out for when trading.
Fear
Traders become fearful of the market usually for one of two reasons. Some are new to trading and have no idea what to do, so they don’t do much in fear of losing their funds. Another reason is a trader may have experienced a significant loss in the past and now the trader does not take risks that could have been profitable. In order to remove fear from your trades, you need to make sure you are managing your funds properly. You should never invest more money into the market than you can afford to lose. Plain and simple. If you know you can survive losing whatever you trade with, then you will be less worried about losing money and more capable of taking calculated risks. Your account will start to grow quickly once you’ve deleted fear.
Greed
Have you ever heard the old saying, “Bulls make money, bears make money, and pigs get slaughtered”? This refers to market cycles and traders, meaning if you are greedy with your profits you will more than likely lose your money. Without realizing it, traders get greedy when their trades pass their profit targets and they remain in the market. They think that since a position is in their favor it will continue to be in their favor. Let me tell you, markets can fall as quickly as they rise. If your take profit goal is achieved, that means the trade did exactly what you thought it would. Why would you want to leave that position open? If your profit target was met, you should close the deal and look for the next trade setup. Don’t get greedy with your profits; take your profits and live to trade another day.
Revenge
Sometimes when a trader suffers a loss in the market they will get feelings of revenge, sometimes without even being aware. Losing anything does not typically produce a good feeling, and losing funds can sometimes create a vengeful desire for more. Quite often, an inexperienced trader will try to recover a loss quickly only to be met with another loss due to lack of planning. As a trader you have to understand that you will lose out on some trades. Not every trade will go the way you want it to and that is completely normal. Instead of getting upset, try to take a look at why your analysis was wrong and use the information to set up a better trade next time.
Euphoria
Perhaps the easiest way to lose your money is in a time of euphoria. When traders take a big profit or are successful in a series of trades, they can become overconfident in their trading abilities. This can lead to poor risk management and can send a trader into emotional disarray. When a trader gets too comfortable winning, he might forget what losing feels like. There isn’t a single trader on Earth with a 100% win ratio. Every trader will take a loss at some point, and you never know which trade it will be. It’s best to keep calm and collected when you are becoming more consistently profitable so you can properly manage your resources.
https://www.youtube.com/watch?v=bZvhvuslSy0
How to Obtain and Maintain an Effective Trading Mindset
Obtaining and maintaining an effective trading mindset is the result of doing a lot of things correctly. It usually takes a conscious effort on the traders behalf to accomplish this. It’s not necessarily difficult to achieve, but if you want to develop an effective trading mindset, you have to accept certain facts about trading and then trade the market with these facts in mind.
You need to know what your trading strategy (trading edge) is and you need to master it. You have to become a “sniper” in the market instead of a “machine gunner”. This involves knowing your trading strategy inside and out and having absolutely NO questions about what the market needs to look like before you risk your hard-earned money in it.
You need to always manage your risk properly. If you do not control your risk on every single trade, you open the door for emotional trading to take hold of your mind, and I can promise you that once you start down the slippery slope of emotional trading, it can be very hard to stop your slide or even recognize that you are trading emotionally in the first place. You can largely eliminate the possibility of becoming an emotional trader by only risking a certain amount of money per trade that you are 100% fine with losing. You should expect to lose money on any given trade, this way, you are always aware of the real possibility of it actually happening.
You need to NOT over-trade. Most traders trade way too much. You need to know what your trading edge is with 100% certainty and then only trade when it’s present. Once you start trading just because you “feel like it” or because you “sort of” see your trading edge, you kick off a roller coaster of emotional trading that can be very hard to stop. Don’t start over trading and you will likely not become an emotional trader.
You need to become an organized trader. If there is something that is the “glue” that holds all of the points I’ve discussed in this part together, it’s that you must be organized. By this, I mean that you must have a trading plan and a trading journal and actually use both of them consistently. Thankfully, 3commas has a trading journal and keeps a record of your trades for you.
You need to think of crypto trading like a business instead of like a trip to the casino. Be calm and calculated in all your interactions with the market and you should have no problem keeping the emotional trading demons away.