When the markets go red - panic starts to set in. Especially when Bitcoin goes on a string of red days we will often see fear spread throughout the industry in Reddit and Twitter posts, as lots of analysts start to predict the demise of Bitcoin.
For those with little market experience, these price falls will be very difficult to deal with. When Bitcoin falls by over 20% in under a week it is very hard to blame them for starting to feel fear. However, to be a successful trader (and investor) it is EXTREMELY important to keep your emotions in check!
So How Do I Control My Emotions?
I have been trading financial markets for close to 9 years now. Over my short trading period, I have noticed that the majority of my early trades were dictated by fear and greed rather than being dictated by a trading plan. I also noticed that when I would deviate away from my strategy things would go wrong pretty quickly. This combined with the fact that, at times, I would invest far too much into a specific market, all used to contribute to fear to erupt within me.
So here are a select few of the important points I keep in mind whilst trading;
Trading Without A Trading Plan
Knowing that you have a trading plan is most likely the most IMPORTANT factor that will contribute to the emotion of fear remaining suppressed as the markets turn red. If you have no trading plan, fear will elevate at an increased pace.
A trading plan is a selection of parameters that a trader must abide by when placing a trade. The most important parameters are the entry price, exit price, stop-loss price, and position size. If a trader has these set, they are good to execute the trade. Once the market starts to turn against the trader, they can take comfort in knowing that they have a specific price at which they will exit the market if it continues to drop - as dictated by their stop loss. This stop-loss is calculated by the amount of risk the trader is willing to take on the specific trade - usually below 1% of the total portfolio in FX markets (even that would be considered high!)
Do you have a plan when you trade? If you have no plan, you have every reason to be fearful when the market starts to drop as you are not doing your own due diligence.
Investing Too Much Into The Market
You should never invest money into the market that will affect your living standards if you were to lose it all. That means you should never invest more money than you can afford to lose. Once a trader starts to invest too much into the market their emotions become highly sensitive as they know they will struggle if the trade goes against you. This is likely to be one of the largest contributors to fear within the cryptocurrency market as inexperienced investors continue to take on riskier positions (Myself included to an extent!)
If you find that you become fearful when the market starts to fall you should take a look at your portfolio and analyze your risk. Maybe you should even consider rebalancing the entire portfolio as you may have taken too much risk?
If you are a trader who lives by the rules of DYOR (Do Your Own Research) then you are ahead of the majority of traders. Follow the news. Make your own opinions. Don’t just listen to opinions on social media platforms and take them on-board as Gospel. For sure you should look at Technical Analysis articles (including my own I must add :)) but make sure you learn to take a look at the charts yourself and do your own analysis to form a rounded opinion.
Furthermore, an investment in an early market such as Bitcoin should always be taken over a longer period of time. You should be here for the long run. This is certainly not the place to come and make a quick buck if you are not an experienced trader. If you remain patient when markets are falling and remember why you believed in this technology (or the specific project you are following) you should notice the fear disappearing during the red days.