Cryptocurrency Trading: How Important is Psychology?

cryptocurrency trading psychology
Cryptocurrency trading can be a pretty bumpy ride. As the most volatile tradeable market it is undoubtedly going to be a roller coaster of emotions if you aren’t prepared.

Big moves, unexpected news spikes, periods of quiet followed by big moves – all these events impact your trading.

But not in the way most people expect.

All of these things have a huge impact on your trading psychology. This, in turn, has a massive effect on your trading decisions and results.

In this article we are going to take a look at what exactly trading psychology is, just how important it is for your trading, and what some of the best habits are that good traders apply to their trading psychology.

What is Trading Psychology?

Your trading psychology is built up of your emotional and mental state, both extremely influential factors in your decision-making. This impacts all aspects of your life, not just trading.

Cryptocurrency trading mindset

Learning to assess your own psychology is a vital part of finding success in cryptocurrency trading.

Self-discipline, patience, rationale, self-worth, accountability, emotions, character, beliefs; these all come together to form a complex psychological state that influences your decisions.

This inevitably impacts your trading.

As traders, it is our goal to reduce any negative impact that these influences have. You will commonly see this referred to as using objective decision making and reducing subjective decision making.

But what do we mean when we say objective and subjective?

Subjective Vs. Objective

For something to be objective, it needs to be separate from interpretation and bias. Objectivity is based on hard facts that are not influenced by our perspective.

For something to be subjective, it must be influenced by our opinions and interpretation. This is the impact of our emotional and mental state on our decision-making

Your aim when improving your trading psychology is reducing the impact of your subjectivity and instead tapping into that objectivity.

This results in much higher quality trading decisions because they are not influenced by our bias and subjective reasoning.

A significant factor in achieving this is detaching yourself from your trading.

That may sound counter-intuitive, but hear us out.

If you are emotionally invested in a trade, you become vulnerable to making decisions based off of those emotions. This leads to actions such as, but not limited to, exiting trades early, extending your stop losses, or chasing bad trades that you shouldn’t be in.

Remain objective in trading

By detaching yourself you allow objective reasoning to direct your trading decisions.

But understanding your psychology is going to play a big role in achieving this.

It is this approach of understanding that will enable you to perform at a higher, more advanced trading level.

We have listed some of the best questions you can ask yourself to help you understand your current trading psychology:

  • What are my expectations?
  • Have personal events impacted me?
  • Has my environment impacted me?
  • Am I being objective in my analysis?
  • Have I entered a trade based on objective decisions?
  • Are my stop loss, entry, and target objective in their placement?


Perhaps you had a flat tire today, were late to work and now have to dedicate a Saturday to catch up. That day would in all likelihood put you in a bad mood.

Part of understanding your trading psychology is experiencing this situation and assessing how it might impact your trading. Perhaps your patience is wearing thin, or anger is close to the surface, or a careless attitude arises.

However it manifests, being aware of it will lead to much better decision-making.

Understanding yourself and how your trading psychology will make you a more profitable trader. Your experiences have a constant impact on your psychological state and the best traders know how to navigate around them.

How Important is Cryptocurrency Trading Psychology?

Cryptocurrency trading in particular is tougher on your trading psychology than most markets.

We are trading one of the most volatile and unpredictable markets – mastering your trading psychology is going to give you a huge edge.

Experienced traders will have a slight advantage because they have quite literally experienced more difficult trading situations. Advanced understanding of your trading psychology allows you to navigate around any negative psychological impacts.

Maintaining objectivity is essential.

If you can do that, you don’t miss out on trades because of your psychology. In a volatile market, that can mean some big wins.

Master Crypto trading psychology

All that volatility, however, translates into a bumpier ride when it comes to your experience of the market. Your psychology is “under attack” more because of this.

It can be difficult to withstand all this if you don’t put any effort into managing your trading psychology.

So trading psychology in cryptocurrency is not only extremely important – it is arguably the most important factor for success in cryptocurrency trading.

Important not only for the potential negative impact it can have but also the positive impact it can bring to your trading:

Impacts of Developing Trading Psychology

  • Take more trades
  • Higher quality trades
  • Higher quality analysis
  • Higher quality stop losses, entries, and targets
  • Better time management
  • Long-term mindset
  • Increase in mental stamina

Impacts of Ignoring Trading Psychology

  • Fear of trading
  • Fear of losing
  • Fear of missing out
  • Following the pack
  • Higher losses
  • Lower profits
  • Chasing trades
  • Gambling

These are the most impactful things related to cryptocurrency trading psychology. Keeping an eye out for these is integral to sustained success! Bookmark this page if you want to remember these lists.

Good Habits For Trading Psychology

So how do you master your trading psychology?

It can seem daunting when you first read about this, but in reality it is a gradual change that doesn’t have to be stressful or even take that long.

There are some really good habits for traders that have an immediate, positive impact on your trading.

  1. Journal Your Trades
  2. Journaling is boring, we know, but it also allows you to have an incredible source of objective data that you can tap into. Maybe you want to make changes to your strategy, or think your target should be slightly higher based on previous trades. Access to your results and data will enable you to base these decisions on strong, objective ideas rather than subjective ones. Add a column on your journal for how you are feeling when taking trades so you can track the impacts.

  3. Ask Yourself Questions
  4. Before you trade, ask yourself how you are feeling. If you feel a bit angry and impatient, keep that in mind when looking at your charts. Often, you will find that simply answering these questions to yourself will allow you to naturally adjust to these feelings. Try it out, you’ll be surprised at how it can have an immediate effect. The trick is to make it last!

  5. Have a Trading Plan
  6. This is vital for cryptocurrency trading in general, but it also impacts your trading psychology hugely. A rule set for your risk management, trade requirement, trade management etc will prevent any emotions from influencing your trades. Quite often, your trade parameters fall victim, with far reaching targets in the hope for a big win, or large stop losses to wait for that “inevitable” turn around. Have a trading plan and stick to it.

  7. Accountability
  8. Accountability is huge for your mental stamina. We are inherently bias toward ourselves. The saying “We judge others by their actions and ourselves by intentions” is applicable here. You aren’t always going to be the best judge of your actions. Having someone you can be accountable toward will prevent you from making bad decisions, give you another perspective, whilst also offering a bit of support.

  9. Discuss Trading
  10. We hope that you are trading in part because you enjoy it. There are some really interesting people who trade cryptocurrencies – find a community and discuss trading them! Lighten the mood with your trading because it can get very doom and gloom if you aren’t careful. Trading is fun and exciting as long as you have the right mindset when you approach it.

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