What Is Trading Psychology? And How Does It Affect Your Crypto Trading?


A trader’s mindset is as vital to his success as his mastery of analytical and research skills. However, many people do not pay attention to these psychological issues embedded in human nature.

It is common for traders to jump into trading after some practice without understanding the critical emotions that could go against making consistently profitable decisions. No wonder most day traders lose their capital within one year of trading.

So, what is this trading psychology, and how does it affect your trades?

What Is Trading Psychology?

Trading psychology refers to the emotional and mental state of a trader that affects their trading decisions. It represents a trader’s state of mind which influences their trading actions and determines his success.

Your mindset determines how you handle your profits and losses in the crypto market. You should handle trading as a business; after all, making decisions out of emotions could be detrimental to the business’s success.

The Nature of Crypto Day Trading

Before we go deeper into the psychological issues that affect trades, we need to first understand the nature of cryptocurrencies. Below are some things to know.

1. 24-Hour Opportunity

The crypto market is open for 24 hours every day, availing you of unending opportunities to make money. Unlike the forex market, which closes on Friday, the cryptocurrency market is always open. This makes it possible for traders to have more trading flexibility.

2. Volatile Market

The market is volatile, thus, leading to constant price fluctuations. A single crypto token could rise by more than 100% within some hours and drop again. The price rise could be triggered by sentiment changes resulting from celebrity endorsements or social media comments.


Day trading often requires traders to think fast and make snap decisions. They often get in and out of trades at different intervals and on short notice.

3. Sentiment

The future value of a cryptocurrency is dependent on whether investors believe in a coin or not. Sometimes, they also move according to influencers’ comments and activities on social media.

There have been instances when comments on platforms like Twitter and Reddit affected the price of some tokens. This gives it some elements of randomness and chance.

4. Pegged to Bitcoin

Investing in different unrelated assets within an asset class has been a risk-spreading strategy for investors. Doing this could be challenging in crypto trading because the tokens move in the same direction as bitcoin.

The value of Ethereum and many altcoins, to a great extent, is pegged to bitcoin—when the price of bitcoin goes up, they go up, and when the price reduces, they also reduce.

The Psychology of Crypto Trading

Crypto trading poses some psychological challenges to traders. Some of these challenges have been described below.

1. Losing Money

Nobody wants to lose money. We have been taught to keep our money safely, and we tend to feel bad when we lose it. However, this mindset does not work for a day trader. A trader will lose a part of his trading balance no matter how good they are at trading. In fact, they will have losing streaks.

Most new traders do not handle this reality well, leading them to start taking measures to beat the market consistently—such is usually counterproductive.

2. Wrong Orientation

Most people get into trading for the wrong reasons, like having unrealistic profit expectations. Social media also does not help: it is common to see pictures of so-called traders on Instagram, using flashy cars and luxurious items. The showoffs have made many believe that trading is a quick-rich scheme.

Eventually, most of them lose all their money or get shocked by the reality of what day trading holds.

3. Making Money

Having winning streaks also affect the trading psychology. Winning streaks make many traders feel that they are already very good at trading. Many easily get carried away, forgetting that winning streaks do not last forever.

4. Unending Trading Opportunities

The market is always open, and it is very volatile. The opportunities to make a lot of money are unending. Traders usually fall into this trap to think they can trade at all times and in all market situations.

This has also been known to cause unending nightmares for day traders. The 24-hour availability and market volatility make many day traders overtrade.

5. Rumors

It has been established that market sentiment and social media comments affect the crypto market. However, no one can boldly determine the particular one that would affect the market—it still has some elements of chance. However, these comments easily get into beginner traders, and they try to make their trading decisions based on them.

Making trading decisions based on rumors never ends well; it heightens emotions and makes traders trade for fear of not being left out. Traders who take social media suggestions at face value end up losing their money.

All these situations lead to psychological issues that end up affecting traders. Traders experience issues like fear of missing out on big opportunities, doubt about one’s strategy, greed, disappointment, and anxiety.

Practical Steps in Mastering Your Trading Psychology

Since we have considered some of the psychological issues that traders face, we should also look at some of the practical steps you can take to build your psychology for effective day trading.

1. Have the Right Trading Mindset

Always remind yourself that the market is not constant. You will have good days and bad days—they both shall come and pass. Also, don’t forget that you will not make a fortune quickly; building a rock-solid portfolio takes time and effort.

2. Create a Trading Plan (Set Rules)

Many activities happen in the cryptocurrency market, and you need a set of rules that will guide you. Your rules should cover the type of trades you want to trade and the time you want to take these trades.

These rules might also include the maximum wins or losses you can tolerate within a day. Aside from that, you must have a reasonable stop loss and take profit, a risk-to-reward ratio that you are comfortable with, and a proper entry and exit strategy. You must also know the fundamental factors to watch out for.

When you’ve reached any of your limits, you need to stop trading no matter what the market brings up.

Take your time to build a trading plan that is not affected by market sentiment. You can observe what successful traders are doing and learn from them. Do not copy them—stick only to your proven plan.

3. Stay Disciplined

Once you’ve created a plan, you should stick to it no matter what. An undisciplined trader follows rumors and opinions. Such trader does not have a trading plan. Indiscipline in trading only opens the door to different trading emotions that will only make you keep losing money.

4. Have Regular Trading Breaks

The market is open for 24 hours, but sitting down before the market for 24 hours does not help. It would only cause you to burn out and start to gamble or make emotional decisions. Take regular trading breaks or have a specific number of hours you trade daily.

5. Keep Practicing

Practicing can help you develop mental strength. Most exchanges have practice accounts where you can learn to trade. You can also use them to build a reliable strategy. You can consider some of these exchanges that charge low fees for your practices and trades.

6. Use Automated Trading Strategies

If you do not want to go through the process of learning how to trade, you can use automated bots. These bots are programs that carry out your trading for you. The trading bots take every trade based on the market condition and are not affected by emotion. They are not affected by fear, greed, or doubts.

One other main advantage of crypto bots is they stay online 24 hours every day. With them, you can be sure of not burning out and making the best of trading opportunities. We have another guide to help you understand more about crypto bots and the types that suit you. We will also not forget to tell you that not all trading bots are reliable—be careful in your search for one.

Your Trading Mindset Is Key to Your Trading Success

To be a successful trader, you need to learn to be able to trade according to your strategy and not follow your feelings. If you don’t deal with the emotions that affect trading, they will deal with you. The good thing is that these tips do not work for just crypto trading; they are also valid when trading in other financial markets like forex and stocks.

Please note that we are not giving you financial advice. This is only to guide you on a key issue that affects day traders. We encourage you to seek the guidance of a licensed financial advisor before making any significant investment decision.

Read More: What Is Trading Psychology? And How Does It Affect Your Crypto Trading?

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