This article will delve into some of the psychological skill needed to trade the markets, especially the cryptocurrency market.
Many traders often overlook psychological well-being, and this shows in their results. When emotions take over, it is not the trader that makes the decisions but their impulses.
Price action guesswork:
Many traders fail to remember that price action is the most significant clue in trend analysis and trade execution. In many cases, novice traders try to guess the direction of the market without doing any, or very little, analysis before entering trades. The most crucial point that viewers should remember from reading this article is this: price action rules.
The reason that is is because many indicators only follow the price movements and thus do not portray a proper picture of what will happen. For example, if BTCUSD moved to the downside, the MA will take some time to show this downward movement. Therefore, indicators should not be used at face value, but instead, be analyzed for extra dynamic support and resistance areas.
Importance of simplicity:
Simplicity is key, particularly for novice traders. Many new traders believe that having a vast number of indicators improves their chances of executing a profitable trade. This is false and usually reduces the probability of success as it actually clouds the traders’ judgment more than it helps them. Many charts on various sites and social media platforms have 7 or 8 indicators of which most will be conflicting with each other, i.e., indicating different directions.
As such, having too many indicators can be confusing and does not give a clear and simple indication as to where a market is heading. It is recommended to use a mix of key support and resistance levels, Fibonacci retracement and extension levels, back-tested MA’s, candlestick patterns, chart patterns, and trendline analysis. Charts should be kept simple to get a clear message and make the best decisions possible.
Patience is another important factor in determining crypto traders’ successes. Many novice traders tend to think that they must always have at least one open position. However, this is far from being true and usually derives from an attachment to money rather than a look at good quality setups. It is advised to ensure that all the correct trade criteria are met before opening trades. When already in a trade, it is essential to let the market breathe and give it space to move, this requires patience as a trade cannot be expected to turn in a profit right after it opened.
Greed is probably the most destructive emotion that traders’ face. Greed when entering trades, or whilst in trades, means that a trader is overleveraging or entering large positions for the benefit of making more money. When this happens, traders’ risk management is forgotten, and their main aim is to make large amounts of money rather than consistent percentage returns.
Stay tuned to the Bybit blog for more awesome articles from the world of crypto trading!