Tips to avoid emotional investment while investing in crypto
Author: Tommy Murphy
In the volatile crypto space, learning how to manage your emotions and controlling day-to-day influences become the key to financial survival and potential trading success. The cryptocurrency sector has always been known for its volatility, price fluctuations and instability. Therefore, investors should monitor their portfolios and market data when investing in crypto.
Though all the ups and downs of the market are not uncommon, they can be alarming, especially to new investors who have just started. As a result, traders potentially involve their emotions.
So how can one avoid trading out of fear, greed, or euphoria? Let’s have a look.
Choose a Good Starting Platform
Navigating the volatile market while keeping a diversified portfolio may not be an easy task when investing in crypto. In order to avoid making impulsive decisions or depressing investment traps, one needs a deeper understanding of their emotions while trading and a reliable platform for starters.
Choosing the right investment platform for you should not be done on impulse. While popular websites can help you start investing and connect with reliable service providers, you should always do your research based on objective information and risk management.
Carry on due diligence!
Understand Your Emotions
The behavior of any investor can be unpredictable. No wonder why many studies focus on emotions in trading in order to explain why traders experience emotions and overreact in terms of decisions involving money. While numerous situations wherein a person’s rational thinking can be overpowered by stress, having a rational approach is essential in reaching potential success in the crypto investment world.
Sadly, amateur investors typically invest their hard-earned money just to gain returns. Those who have low-risk tolerance are more likely to experience stress and relative losses. Moreover, as Bitcoin and other cryptocurrencies are volatile, experiencing lows and highs is a natural occurrence. However, whenever crypto reaches an all-time high, euphoria and excitement may become just normal reactions.
We should acknowledge our emotions and manage to control them.
Focus on Long-term Strategies
How can one manage their emotions in certain situations? One of the answers is simple – aim for long-term investment. Remember that those who have invested in Bitcoin early have already earned a fortune by holding the cryptocurrency of their choice for a while.
Apart from investing, you must also create an exit strategy. Even if you have just started, you should already aim for a target, or when to stop and take out some of your earned profits.
Remember to think in the long term, not just about money when investing in crypto.
Invest What You Can Afford
One of the essential lessons that every investor should know is, in fact, the golden rule of investment. In crypto, do not invest what you can’t afford to lose.
Here we should note that most experts advise that we only invest a small portion of our portfolio, around 5%, in cryptocurrency.
In the end, even if you choose the right blue chips, such as Bitcoin and Ethereum, always stay rational.
The Takeaway Message
From fear to sadness, emotions can be overwhelming. FOMO or fear of missing out, for example, can be a common reaction, especially among new investors. Unfortunately, emotional investment potentially leads to bad market timing. This means realistic and rational thinking needs practice. Decisions based on emotions must be avoided when investing in crypto.
In order to do that, make sure to stick to your primary investment goals. Investment in crypto is not for those who have a low-risk tolerance and a negative financial mindset.
And never forget: always do your research!