It is common for new traders or investors to simply think of their endeavors as a way to expand their financial wealth and they do not consider their emotions in doing so. The same people often do not contemplate what the basics of trading psychology are, nor do they realize the impact it bears on their decision making.
Back in 2017, Bitcoin witnessed its greatest bull run to date, surging to an all-time high of approximately $19,891. This prompted many to ask when is the right time to buy cryptocurrency? Purchasing, or even selling, a digital asset is all too often governed by a person’s emotions.
An asset’s price will increase significantly during a bull run. In turn, many are quick to purchase it because they fear missing out on a profitable opportunity. It is unwise to buy at the top, since the chance for obtaining higher margins has already passed. This is one mistake to avoid while investing in a bull market, largely because information is filtered from the highest echelons to the bottom; unless you are a professional, by the time you hear of an opportunity, it has likely already passed.
Expert neuropsychologist Denise Shull argues that traders make decisions based on how they predict others will act, rather than using data. She conducted brain exercises on traders based on research into the mind and attests that they view markets in a “human way”. This notion would suggest people are more likely to purchase during a bull run, as they believe others will do so too, and vice versa.
Trading can be profitable in both directions and not just when a given asset rises in price. However, if people have started to sell their digital assets, their prices will naturally decline since the supply has increased while the demand has decreased. The fear of losing too much quickly prompts some to liquidate their own holdings and thus the price drops further.
Given the abundant variables that influence the price of assets, it is important people have tools that aid in checking who is offering the best price with the lowest fees. There are tools used for analyzing the top-rated forex brokers in traditional foreign exchange markets and are beneficial in assessing who is offering the best price for the purchase or sale of an asset.
It is essential traders have access to this type of data because if a particular stock or digital asset looks as though it could falter in price, they will need the optimum broker to purchase it from them. For those whose holdings have grown exponentially, they may wish to liquidate part or all of them and likewise require an entity to purchase the assets, at the most competitive price.
Contemporary research, such as studies into the power of patterns and principles in trading psychology, have also found that people often “repeat patterns of success as well as ones of conflict”. This problematic instinct is triggered by anxiety and subsequently forces prior behaviors to arise in the trader. This presents numerous challenges for them since their suppressed emotions effectively dictate their decision making.
When a digital asset follows a trend similar to another cryptocurrency the trader has seen before, they instinctively repeat the previous trade. Since they are not consciously aware of this factor, it remains to be seen just how many make like-minded trades are based solely on another asset’s previous price movement. In turn, the cryptocurrency that is being traded will be influenced by emotional factors, such as anxiety, that are unbeknown to the trader.
While there are other influences behind price movements, emotions evidently play some small part and learning how to control them, whether that be by taking a short break or using a stop loss to mitigate risk, it is crucial people understand these techniques. Prices will always be subject to change; however, the more people are self-aware of how their emotions override their reason, the more mature a market can become through their actions.