Impulsive Trading: Things You Should Know To Avoid Irrational Trades

Impulsive Trading: Things You Should Know To Avoid Irrational Trades image

In the world of cryptocurrency, things can be quite intimidating.

You’re quickly overwhelmed with how the tokens profess to alter the status quo through their unique and active blockchain technology.

Crypto traders should have a good trading plan, one that is deliberately thought-out. One of the bad habits a trader can have is trading impulsively and not having any guidelines to follow. 

A successful trader often takes time to make trading plans, but even with a plan at hand, one can still develop bad habits over time. However, every trader can change and the best time to start changing is right now.

Trading Plan

A trading plan is a systematic method of guidelines that define your trading behavior. It takes into consideration a number of variables including risk management techniques, time, strategies, and the investor’s financial goals.

Cost Analysis

Crypto traders need much more than technical prowess. They also need to master their mental game on the cost.

If you mine bitcoins for free and sell or trade them for whatever the market value is, then this will become increasingly more difficult. The more competition there is between you and other traders, the more computing power it takes to mine for these bitcoins and the more cost is associated. 

Bitcoin mining requires you to buy more hardware which would also mean more electric consumption and higher electric bill to pay.

To avoid irrational trading, you must do a cost analysis to figure out if it is profitable or not. However, if you are already spending money with mining and trading bitcoins, you must examine methodically and in detail, if what you are gaining is much more than what you are spending.

Bitcoin Bubbles

According to Investopedia: 

“A bubble is a rapid escalation of asset prices followed by a contraction, often created by a surge in asset prices that is fundamentally unwarranted.”

In the speculative bubble of bitcoins, coin prices are unpredictable.

You may see a coin in which you have been scaling your position to drop well below than what you had estimated, or contrariwise, a coin you thought was going to drop into your buy zone begun to increase its price very steeply in a short span of time.

Knowing your point of entry and price target before you’ve even logged into a trading or exchange platform is critically important.

That is why…

Don't fall for the hype.

Making money in a speculative market like crypto is about anticipating and understanding mass human psychology.

According to the CEO of Berkshire Hathaway Inc., Warren Buffett:

“We simply attempt to be fearful when others are greedy and to be greedy only when others are fearful.”

To avoid unreasonable trading, do the opposite of what people are doing. When everybody starts to panic, look for opportunities to buy, and when everybody is reeling in exuberance and driving the price of the market up, look for reasons to sell.

Control Your Emotions

Letting emotions take hold can ruin a trade.

Watching your investments hit soaring highs and plunge to devastating lows may sometimes be profusing and overwhelming. But do not let your feelings and emotions get in the way, especially in the world of trading bitcoins.

When you are a seller and the market price for bitcoins skyrockets, you tend to have the urge to throw your trading plan and strategies away because you “feel” that you know what is going to happen next in the market and be moved by emotions. However, this may lead you to your downfall.

As the economist Keynes has said, “markets can remain irrational longer than you can stay solvent.”

Remember that traders need to base the success or failure of their trades by how they stick to their trading plans and not only on whether they gain or lose money.

Establishing control and resilience over changes is necessary.

Market Timing

Impulsive traders are almost always losing trades.

Impulsive traders tend to have difficulty in delaying gratification. They would rather take smaller, immediate rewards, which is risky in the world of bitcoin trading.

However, long term buy-and-hold mentality is risky, too.

The “perfect” example of unemotional, non-compulsive and non-impulsive is market timing.

Market timing is a trading strategy where traders use predictive methods when to move in and out of the financial market. It also requires conformance to a trading strategy that necessitates trading bitcoins not when you feel the urge, but only at a specific point in time when your trading plan or strategy tells you to do so.

Market timing is simply buying and selling, accordingly.

You should take trades, not for the thrill of trading, but because it is required according to your trading plan. All risks must not be ignored, a logical trading strategy is followed, and there must be an exit strategy prepared ahead of time.

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