Let’s dive a little into trading psychology. It is important to understand that emotions and emotional reactions influence your trading decisions. For example, when you’ve made a loss in a trade, you may want to quickly jump into another trade to recover your losses. This often leads to more losses. Sounds familiar?
Our message for today: By understanding emotions in trading psychology, you can understand the movements in the market and become a master of trading!
Two Trading Psychology Rules
Trading psychology essentially comes down to two basic principles or rules. These two principles apply to all stock and currency markets including the Bitcoin and cryptocurrency markets. The two leading principles of trading psychology are: Fear and Greed.
Both of these are key human emotions and they determine a lot of the behaviour in a market. When prices drop, people tend to feel fear and may decide to sell. This brings prices even lower. When prices rise, people get greedy and may decide to buy. This brings prices even higher. We’ve seen this in Bitcoin in recent years.
Fear And Greed In The Bitcoin Market
Remember when Bitcoin prices peaked in 2017? Bitcoin was a massive hype and everyone was talking about it. As prices moved to almost $20,000, it seemed that Bitcoin was only going up further to $50,000 or $100,000 or even higher. At least, that’s what the masses were thinking. That’s what mainstream media was saying. That’s what YouTubers were talking about. People got greedy and wanted more! Buy, buy, buy, was all we heard. Bitcoin would never crash.
And we all know what happened next…
A major downfall and bear market which is lasting more than a year. The price of a Bitcoin has gone as low as $3,000. What happened to all the mainstream media and the YouTubers? The same people that said Bitcoin would never crash, have now declared Bitcoin dead. What we’re hearing nowadays is that Bitcoin will go to $2,000 or $1,000 or even to zero. The end is near. The past months we are being told to Sell! Fear has been the dominating emotion of the masses.
The Big Contradiction in Trading Psychology
Here’s something contradictory: Greed is often a bearish sign, while fear is often a bullish sign!
Yes, that’s right. Professional traders are aware that the same greed that brings the price up, can and often does bring the price down. Many smart traders knew that Bitcoin was overhyped and would eventually come down again. Those traders sold their Bitcoin around the end of 2017 or beginning of 2018 with major profits!
Those exact same people have been waiting for the ‘fear’ to kick in. Nobody can tell when the bottom of Bitcoin is reached, but we can definitely see that fear has been the dominating emotion over the past year. This is speculation, but it is likely that professional traders are stocking up on Bitcoin.
The Future Of Bitcoin
When it comes to trading, there are no certainties. There are probabilities and possibilities. Is it possible that Bitcoin will die out? Yes. It is probable? No.
We believe that Bitcoin and cryptocurrencies are here to stay. That is due to the underlying technology, the blockchain. This technology has the potential to change the lives of the human race just like the internet did. It is difficult to predict the future, but Bitcoin and blockchain have a major potential.
Professional traders like Alessio Rastani understand how the markets work. He’s actually predicted that Bitcoin will retest the $3,000 range in the upcoming months. For the long term, he is expecting Bitcoin to recover and potentially see new highs within the next 3 years.
In one of his latest videos he discusses fear and greed in trading psychology. He also discusses an interesting pattern of Amazon that we may well see repeating for Bitcoin in upcoming years.
A Final Note
We hope that this article will make you aware of the two key principles of trading psychology. Notice how these two emotions influence your trading decisions. Also notice how you currently feel about Bitcoin. Is some part of you fearful about Bitcoin? How do people around you think about Bitcoin?
Disclaimer: This is not trading or investment advice. The above article is for educational purposes only. Please do your own research before purchasing or investing into any cryptocurrency.