Trading Psychology is an interesting topic that many just give lip service to or do not understand the level of importance Traders should place upon it.
Ultimately, Trading Psychology relates closely to Risk Management like many other things essential in a Traders education and toolkit. If you want to be a successful Crypto Trader and don't manage risk properly, you will not see the results and obtain the success you want.
Great care needs to be taken because Traders Psychology issues not addressed can break a great strategy and bring about losses.
Also, with consideration is that the Psychology of a Trader will evolve over time as their life changes and they experience success and/or failure, different issues can and will arise. It is not something you set and forget. Also, we all have flaws, personality traits and conditioning based on life experiences that may have negative consequences on our trading performance, the ability to identify and deal with those points will help your Trading performance.
From a CryptoMates perspective, we focus on Trading Psychology in two main areas:
1) Learning to identify the risks
As we are all different, trading risks are not the same for each person, this is why good Trade Documentation and End of Month reviews are important because they help you with identification.
Some of the common risks we see:
- Trading when upset or when you are focused on paying bills
- Trading when tired, drunk, have a headache, just had an argument, angry or stressed
- Trading before you have had your morning coffee
- Trading from your phone
- Trading in a noisy location when there are lots of distractions
- Not following your Trading Plan because you get greedy and want to get more from a trade/position
In a mentoring session with you, we can go over your Trading history, charts, trade documentation and trading plan and help identify what are the highest risks that you should be dealing with first.
2) Finding ways to manage those risks
Common risks like trading while drunk, angry, before coffee, etc are easy to deal with. Just make a decision not to trade at those times.
Other risks are more difficult to manage. When looking at managing risk, consider some key factors:
- Be flexible - say for example you have planned to dedicate some time to trading on a particular afternoon or evening, had an argument or got a headache - allow yourself to say "I shouldn't trade now, I'll go and relax instead"
- Experiment - Try trading at different times of day, early morning, after dinner - compare your feelings and performance at those times, the more you trade at different times of day the quicker you will realize either consciously or subconsciously when is the best time of day to trade. Imagine for a second if you only ever trade in the morning but find out that you trade much better in the afternoon.
- Trade from a position of comfort, not fear - take trading using BTC for example, it is not as emotionally difficult as a new trader to trade BTC because if you are risking $10,000 on a trade, it will be emotionally much more stressful than risking 0.2 BTC because visually it is a much smaller number.
- Trade your own charts, not someone else's - Build confidence in yourself and your own trading ability, yes, it is great to get a trade tip from someone but after you get a trade tip you should own the trade, be able to go through your own trading plan and checklist of factors for the trade and make sure you would trade it if you had discovered it yourself.
- A Trade tip should be an idea, not a decision.
- Sleep at night factor(s) - Don't go to sleep worrying what your trades will do, whether you will lose money while sleeping. A good trading plan and trading rules will ensure a good nights sleep.
There are various other factors to consider to manage risk and improve your Trading Psychology, such as finding a Trading Buddy or getting help from a mentor.
While some people have identified that the only way to learn is by making the mistakes yourself and learning from those mistakes, that's all well and good but if you are not documenting and recording the changes you make then how will you be able to identify any mistakes you make?
Book a Trading Psychology Session