How to Manage Emotions When Trading Crypto

Trading and investing in cryptocurrency can be a thrilling and lucrative experience. But it's easy to get swept up in the hype and enter a downward spiral. Impulsive decisions often lead to poor financial choices that negatively impact your mental health.

Do you find yourself getting carried away when trading crypto? These seven tips will help you manage emotions so that you can trade with a clear mind and be profitable.

1. Record Your Trades & Emotions

The best way to recognize patterns in your behavior is to record everything. Get in the habit of noting down every trade you take - whether it is profitable or not. Then, write down why you took it and how each trade made you feel.

Made bank on a trade? Don't get too cocky now! But be sure to celebrate the win and make note of what worked. If you lost money on a trade, it is normal to feel frustrated and upset. Write it down, and reflect on why you feel this way and how you could have avoided it. Don't dwell on it, though! The key is to identify what strategies worked and repeat them for future plays to improve your win rate.

2. Create a List of Rules... and Stick to It

Before you jump in, make a list of rules to follow. Rules help prevent your emotions from overriding your trading strategy. They can be as simple as:

3. Build Up Risk Tolerance

When building your cryptocurrency portfolio, start small and work your way up. Do not go all in on your first trade. If you full-port, you could lose it all in an instant if that coin drops in value.

At AR Collective, dollar cost averaging (DCA) is our best friend. This strategy involves buying a certain amount at regular intervals rather than making one large purchase. DCA is smart because it:

Let's say you have $5,000 to put into a trade. Instead of purchasing $5,000 of Bitcoin today, you may put 10% of the $5,000 to work. If BTC drops in the coming weeks, you'll still have money to buy at a lower price, bringing your average down. By utilizing this strategy, you will be profitable quicker on the next rally up.

4. Do Not Overexpose

One of the biggest mistakes beginners make is having too many open trades. It can be hard to fight FOMO when you see your favorite crypto influencer raving about the next big DOGE. But the reality is, that overexposure to any asset or market is detrimental.

Remember that cryptocurrencies are volatile assets with high risk-to-reward ratios. Increase your chances of reaping the rewards and lower risk by diversifying as much as possible. A well-rounded portfolio helps you minimize potential losses while maximizing gains over time.

5. Be Consistent

Consistency is key - regardless of whether you are a new or seasoned crypto trader. If you want to be a successful investor, don't deviate from what works! Remember your rules and stick to them, no matter how tempting it is to take a trade on a weekend, for example. This habit takes a lot of discipline. But it will ensure that your emotions don't get in the way of making sound decisions.

6. Know When to Cut Your Losses

Let's be real - nobody likes to lose. But occasional losses are part of trading. This is why we stress the importance of not investing with money that you need to pay bills. With that said, knowing when to let your losses go can save your portfolio from sinking to zero. If you diamond hand a losing trade, it may continue to bleed deeper into the red. It is better to take a small loss that may have potential in the future. By cutting losses early, you can make the money work somewhere else.

Struggle with cutting losses? The good ol' stop loss will be your other best friend! A stop loss automatically triggers when an asset reaches a certain price point. This way, you only lose a small portion of your portfolio rather than all the money you put into a trade. Stop losses allow us to let a trade pan out without getting overly emotional if we see the price go down.

7. Slow and Steady Wins the Race

We cannot emphasize this enough: Start trimming when you are in the green! A good rule of thumb is to reduce your position every 10% up. Yes, the asset may continue to rise in value, but it can also go down quickly before you get the chance to secure profits. Remember to pay yourself and minimize risk. Slow and steady wins the race... so compound, compound, compound!

The Bottom Line: Responsible Traders Keep Emotions In Check

Emotions can cloud your judgment when trading. If you are new, consider practicing with a demo account or paper money first. This way, you can dip your toes into trading crypto without risking real money.

Dedicate some time each week to study what went well in your trades and what didn't work out so well. This process will help you make calm, rational decisions and be more profitable in the long run.

Get Accountability at AR Collective

Accountability goes a long way when it comes to managing emotions and becoming a better trader. You can get this by joining a community of traders and friends who support each other. AR Collective is a thriving family of crypto enthusiasts that are always willing to lend a helping hand. We may be a little biased, but our community is pretty awesome.

We have over ten skilled analysts that share the trades they take, and the reasoning behind each one. Many of our members are learning fast and have started sharing their plays too. We offer support and remind each other to follow the rules for making good trades.

Sign up today and EAT with us!