There are two primary ways to approach crypto market psychology, although they are closely connected to one another. There is the big picture, relating to the psychology of the market as a whole, and then there is the individual perspective, often referred to as trader psychology.
The thought processes and subsequent trading decisions of each trader impact market movements and form the basis for the crypto market psychology, which is essentially the group behavior resulting from the actions of all the individual traders combined.
In this post, we’ll examine how a crypto trader’s thoughts and feelings can impact their trading success and how their actions can be influenced by the psychology of the entire crypto market.
Not every trader thinks alike, and this is what enables the market to exist and function. Given the same market data, some market participants will choose to buy, and some will choose to sell, each with their own motivations and time frames.
However, just because two traders are on opposite sides of a trade, they are not necessarily in opposition to one another, in a zero-sum game where one is the winner, and the other is the loser. In fact, they may actually have different, yet complementary goals. For instance, the seller could be a day trader who is looking for a quick profit by selling the crypto asset for a price that is higher than the amount they bought it at, all within a very short time frame. Meanwhile, the buyer could be HODLing, looking to hold onto the asset for the next few years, and is therefore unconcerned by brief intra-day fluctuations in the price.
The case where we do have a zero-sum game is when the aims and circumstances of both traders align. For example, when two swing traders are opening a position on the same coin at the same time.
When you enter the market, your aim will be for your individual trading psychology to be one step ahead of the crypto market psychology. This means keeping your feelings in check, even when the market takes an abrupt turn, a common occurrence in the crypto arena. Most traders follow the crowd and they either they fail to set a clear strategy in advance, or fail to follow through, because emotions get in the way.
To get a sense of how crypto market psychology functions, you can turn to various forms of analysis relating to the news, market sentiment, price bias analysis and so on. However, all of this data will only take you so far. The crypto community often experiences an echo chamber effect, where the same views keep getting reinforced, and this hugely influences crypto market activity. Take for example the frenzy that occurs for a wide range of emerging altcoins within certain categories, with each new “alt season”. Unlike with legacy finance, the barriers to entry for new coins is far lower than for a company joining the stock market. New ideas can catch on faster, but equally, innovations can disappear with lightning speed.
With the abrupt price shifts associated with crypto trading, it can be hard to keep a level head. The trick is to trust your own research, experience, insight, and preparation. Most important of all is your crypto mindset – your ability to use your emotions to your advantage and not let them work against you.
In a moment of extreme volatility, instead of being swept away, if you can control your feelings, you can make the rational, smart move, while the majority of market players act on the emotion that the upheaval has provoked.
Crypto trading psychology is based on combatting the primal emotional triggers of fear and greed. The high level of volatility associated with crypto trading makes for a pressure-cooker environment that can throw off even the most Zen-like investor’s judgement.
The hard truth is that you are never going to be free of your emotions when crypto trading, but that is perfectly alright, so long as you learn to recognize, acknowledge, and manage them.
Understand the exposure associated with each trade, calculating the worst-case scenario as best you can, and decide if the reward outweighs the risk. Then if your trade does turn against you, keep a clear mind and cut your losses.
Crypto trading psychology is all about how the way we think and feel influences what we do on the exchanges. One of the best ways to avoid your feelings impacting your trading is to take emotion out of the equation altogether. If you don’t trust yourself to keep feelings out of your investing then one solution is to trade without any human emotion at all, by using an algorithmic crypto trading system.
Here at ArbiSmart, our fully automated, EU licensed crypto arbitrage platform enables you to generate returns from crypto arbitrage, an exceptionally low risk form of investing that does not leave you vulnerable to crypto market volatility. It involves taking advantage of temporary price discrepancies across exchanges. These are brief intervals during which the same coin is available at different prices at the same time. ArbiSmart’s algorithm scans almost forty exchanges simultaneously, 24/7, tracking hundreds of coins looking for price discrepancies. It buys the coin on the exchange with the lowest price then immediately sells it on the exchange with the highest price to generate profits of up to 45% a year, depending on the size of your investment.
You simply register, deposit funds and then the platform takes over. You get on with your day and the algorithm converts your fiat or crypto into RBIS, ArbiSmart’s native token, and uses it for crypto arbitrage trading. In addition to profits from crypto arbitrage, starting at 10.8% and reaching up to 45% a year, you will also earn compound interest as well as capital gains on the rising value of the RBIS token, which has already more than quadrupled in value in just two years.
Crypto arbitrage is great in times of high market volatility because it offers a valuable hedging opportunity, since price discrepancies are going to continue to occur with the same consistency, even in a crashing market.
As we can see, a fully automated system offers a means of stepping back and ensuring that your chosen strategy is implemented no matter what you are feeling. However, if you are going to trade manually, it is worth not only maintaining tight control over your own emotions, but also understanding how price movenments are going to impact the psychology of all the other market participants.
If you’d like to learn more about a variety of topics related to the world of crypto, from wallets, trading and exchanges to blockchain developments and the evolution of DeFi, check out the ArbiSmart blog.
ArbiSmart offers multiple, potentially highly lucrative revenue streams. Benefit from a secure, trusted space, where from day one, your crypto will be working hard on your behalf.