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Avoid Emotional Investing in Cryptocurrency

Currencies / BlockChain Nov 11, 2019 - 11:53 AM GMT

By: Submissions


Cryptocurrency is famously volatile. Unlike many other markets, Bitcoin, Litecoin and Ethereum are likely to spike and dip in value very frequently. Those swings have led to many investors making considerable amounts of money from wise purchases; however, it has also left other traders feeling a sense of panic and even deep regret. Seasoned experts in crypto trading advise that it is worth waiting for the peaks but for many people who are just getting started with digital currency, avoiding emotional investment can be very difficult.

Managing risk

The key to trading in cryptocurrency without emotion, sources state, is to take a removed approach to managing risk. With uncertainty and concern continuing to bubble in the world of bitcoin, it is common to see even careful traders start to feel uneasy about what comes next.

Reasoned sources and guides to cryptocurrency trading suggest that temptation may arise, but it is worth avoiding. There is a potential for greed, some argue, which can drive emotional investment.  This, on the whole, could lead to buying and selling which works out poorly for all involved.

Many experts agree that the key to managing risk and avoiding emotional investment in crypto is to not invest all of your available money in one currency, or one particular market. The very nature of cryptocurrency suggests that heavy funding into one area of money, such as bitcoin, could put traders at serious risk of loss. Big losses can lead to feelings of regret and remorse.

To avoid these feelings, traders must detach themselves from the process. Emotionless investing is not impossible but it can take time to perfect.

Using the right tools

Some informed sources and the wider trading public suggest that using tools and apps to manage investments can help to stave off buying and selling decisions based on emotion. A rise in interest in automated services and bots shows that traders are serious about simplifying their trading strategies.  For this reason, it is hardly surprising that new adopters are relying on code and script to make the right decisions.

Removing yourself from decision-making could be a prudent way to avoid applying emotion. Bots and programs such as the Bitcoin Code app, for example, can be used to manage and defer investments.  By relying on a specialist program to invest for you, there is zero risk of you applying negative thoughts or rising feelings of greed to the process. 

While not all traders and investors use apps and bots, it can be a good way to train yourself to understand why emotional detachment is necessary.

Common emotional drivers

There are many common emotional feelings and drivers which emerge during trading. For example, sources suggest that managing your ‘investor persona’ could help you to detach yourself and to see the bigger picture at hand. Many investors may find themselves basing their future trading on how they have performed previously.

Those who regularly fail to profit may be leaning towards options which they don’t necessarily understand. Emotion could get in the way of investing in this manner, as it may cloud judgement as to whether or not a choice is viable or sound.

On the flipside, people who may have made a profit in the past may find themselves expecting to do so every time. This is potentially harmful behaviour. While making a profit is the end goal of all trading activity, setting your expectations too high will impact on how you trade in future. A failure to understand the volatility of cryptocurrency and investing, in general, could lead to severe disappointment and disenchantment.

Is everyone affected?

Not all investors enter into cryptocurrency with emotions flowing. These traders are perhaps more likely to ride the peaks and lows of the markets easier than those who rely on patterns and precedents through emotion. However, we must note that emotions can run high for most people when trading.

Emotional trading can lead to mass selling. Panic leads to unwise exit strategies, which could lead to a media circus if the value of cryptocurrencies were to crash. The bad press in recent years surrounding the potential bursting of the bitcoin bubble appears to have subsided. However, traders that are swayed by media influence will be at risk of making decisions that may not work out well for them. Trading in cryptocurrency, many argue, is reliant on confidence and detachment.

The best way to avoid emotional investing is to be mechanical and methodical. It appears that a good way to start, at least according to some experts, is to use a bot or app to show you the ropes.

By Louise Martin

© 2019 Louise Martin - All Rights Reserved

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

© 2005-2019 - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.

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