On Chain Perpetual Trading Series - Part 4

Traders of the present and future, if you made it this far in the series congratulations, you’ve made it to the final installment Part 4:

The Psyche of a Successful Trader and Market Psychology 

Throughout this series we have been discussing the act of entering and how to execute a strategy. Just as important, if not more, is the mental side of a trade. Trading can be a lucrative way to make money, but it's important to have the right mental attributes and psyche in order to be successful. Below we’ll outline some of the key mental attributes that successful traders share:

• Discipline: Successful perpetual traders are able to stick to their trading plan, even when the market is moving against them. Negating emotion, by following a set plan and executing, allows you to make insane and rational decisions.

• Patience: Trading is a long-term game. It takes time to learn the market and develop a successful trading strategy. Successful traders are patient and don't expect to get rich quick. Learn the lesson of compounding profits, it’s such a powerful tool.

• Resilience: The cryptocurrency market is volatile, and prices can move quickly. Successful traders are able to handle losses and bounce back from them. They don't give up easily, and they keep learning from their mistakes. The worst thing you can do is revenge trade on emotion. Reflect, analyse and learn. The markets will always be here and opportunities will be plentiful.

• Adaptability: The cryptocurrency market is constantly changing, and successful traders are able to adapt to change. They are always looking for new trading opportunities and they are not afraid to change their trading strategy if necessary.

• Risk tolerance: Trading involves risk and successful traders are aware of this. They are comfortable with risk and they know how to manage it. They don't risk more money than they can afford to lose. Circle it back to your trading plan and what percentage of your port you are allocating to a trade.

In addition to these mental attributes, successful traders often have a strong understanding of technical analysis and market psychology. They are able to read charts and identify trends and they understand how market sentiment can affect prices. 

This brings us to our final talking point topic of this series:

Market Psychology 

Market psychology is the study of how human emotions and behaviors affect the price of assets. It is an important factor to consider when trading, as the price of an asset can be influenced by the psychology of the traders who are buying and selling it. So not just some random numbers going up and down on a chart, creating colourful candlesticks, there might just be a reason underlying this movement. 

Some of the key aspects of market psychology that you should be aware of when trading:

• Herd mentality: Herd mentality is the tendency of people to follow the crowd, even if it is against their own best interests. This can create a self-fulfilling prophecy, as more people will buy the asset because the price is going up. However, if the price of the asset gets too high, it will eventually crash.

• Fear and greed: These are two of the most powerful emotions that can affect traders. When traders are fearful, they tend to sell assets. When traders are greedy, they tend to buy assets. Think buy high and sell low. As the great Warren Buffet once said, “be fearful when others are greedy, and greedy when others are fearful”

• FOMO (fear of missing out): This is the feeling that you will miss out on a profit if you don't buy an asset that is going up in price. FOMO can lead traders to make impulsive decisions that they later regret.

• FUD (fear, uncertainty, and doubt): This is the spread of negative information about an asset in order to drive down the price. FUD can be spread by traders who are shorting an asset or by those who want to buy an asset at a lower price.

By understanding market psychology, you can make more informed trading decisions and avoid making emotional mistakes.

Harness market psychology to your advantage when trading.

• Pay attention to the news: The news can have a big impact on the price of assets. If there is positive news about an asset, the price will tend to go up. If there is negative news about an asset, the price will tend to go down. Wen V2??...Wen V3??…Wen V4??

• Watch the order books: The order books can give you an idea of what the market sentiment is for an asset. If there are a lot of buy orders, it suggests that the market is bullish. If there are a lot of sell orders, it suggests that the market is bearish.

• Be patient: Don't rush into trades. Take your time and make sure that you are comfortable with the trade before you enter it. That’s both the position size and leverage used.

• Don't be afraid to cut your losses: If you are in a losing trade, don't be afraid to cut your losses and move on. Don't let your losses get too big. Stick to the game plan, set your limits.

• Use technical analysis: Technical analysis can help you to identify trends in the price of an asset. If you can identify a trend, you can use it to your advantage by trading in the direction of the trend.

To this final point, we’ve said all along we are here to educate you. So without further ado, we’ve secured a TA and market analyst who will provide you with fortnightly content on majors and maybe the odd midcap. 

We’ll be releasing the details on “X” aka Twitter to us old skool, so stay tuned and if you haven’t given us a follow yet, what have you been doing @CryptoRefCodes

That’s me for this series. Next week we’ll be delving into the world of DeFi options trading with the first of our many DeFi project insights.

Have fun, stay safe and get that bag peeps.

Peace out