Psychology of trading

ll traders know about the so-called “Fear and Greed Index”.

When the value of this index falls below 25%, it signals that most market participants are afraid of a possible further market decline and loss of their investments. It is transformed into a fear of making decisions and resuming trading. Traders know that markets are cyclical, and periods of growth are followed by periods of decline, but trading in a rising market is always calmer.

During periods of high volatility and market decline, many traders lose their money, become disillusioned with the market and leave it. Experienced traders understand that a period of increased fear in the market is the best time to buy cheaper assets. It should be taken seriously, analyzing the growth potential of securities and not taking everything in a row, as in a growing market. As a rule, the best prices for purchases appear with increased fear of market participants.

On the other hand, when the “Fear and Greed Index” exceeds 75%, the market is dominated by euphoria. Traders are used to growth and relaxation, buy everything indiscriminately, and do not use stops. As a result, market participants feel that they understand the market well and that any trade they make is profitable. It has been happening for a while. However, as the statistics show, most traders who come to the market in its growing phase cannot fix their profits and are forced to suffer or accept losses.

Tips for traders.

1. It should never forget that the market has periods of growth, calm, decline, low and high volatility. You need to understand and analyze all market phases for successful trading, not just the growing trend. And develop the skill of anticipating the change from one market phase to another.
2. Stick to the trend; there is even a trader saying, “Trend is your friend“. A trend is not just about the chart and price movement direction. It’s also about trending areas, such as Defi, NFT, etc. Those who initially recognized the trend formation in these areas could get the maximum benefit. As an example, you can give tokens; while they are little known, they are not attractive to anyone, but as soon as there is some hype around them and the price rises sharply, many more people want to buy these tokens.
3. If you are afraid to make trades for fear of making a mistake or losing money, reduce the transaction volume and risk accordingly. The best traders earn an average of 1% per day, which corresponds to 366% per annum. But you don’t need to make transactions every day, and it is better to analyze and find such transactions that will show a good result with minimal risks.
4. If you feel tired from the market — you should take a break. In this state, the trader may overlook favourable opportunities. But, as in any business, the market has time for work and leisure.

Fear is a natural human feeling, developed over thousands of years of evolution. Fear helps a person survive. But unfortunately, fear accompanies us in all spheres of life, and it is impossible to get rid of it. You can reduce fear only through knowledge about the market, the reasons for specific movements, and your results.

It is important to remember:

• The market will not disappear; there will always be new opportunities for making money;
• You should not catch up with the outgoing train because, in this case, the entry-level position will worsen, and the correction movement will knock out this position earlier.
• Always observe risk and money management. What matters is the long-distance outcome, not a specific trade.

Practical tips.

1. All problems are in the head; most traders spend most of their time alone and stop consciously evaluating their decisions and actions, negatively affecting trading results. Download a psychological journal to monitor and direct your thoughts, and fill it out methodically. It will help you fix the psychological background and look at the situation from the other side.
2. Most traders work from home, which does not imply a dress code, outside control of their time and discipline. Download the draft schedule log, and make a work plan for the next day in the evening of each day. Then, every evening, celebrate what you managed to do during the day. This magazine will help you manage your workflow and your time competently. You can also mark cases by their importance and order of execution.
3. Be sure to keep a transaction log! Transaction statistics are vital because it allows you to analyze transactions over a long period and understand in which situations it is possible to make good deals and not so much. Moreover, keeping statistics in a complex, chaotic market can save you from making rash, impulsive trades.

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