The term emotional intelligence is used quite often. The term emotional intelligence is typically defined as an ability to recognize emotions and channeling them in a constructive and conscious manner. An individual has at least 6-7 different types of intelligence and it influences most of our decisions including professional ones. With emotional intelligence you are not only able to gauge your emotions, but also that of people you interact with.
As a crypto trader, you can use emotional intelligence to become better disciplined in your trading. You can anticipate and gauge your peer’s action and change your thinking or strategy accordingly.
Emotional intelligence comprises of some key elements like self-motivation, awareness and mental discipline to know when to stop. Often, experienced traders lose money when they lose discipline and self awareness to stick to their plan.
This is one of the biggest factors. As a crypto trader, you have to always be aware of your biases and be ready to change your approach as the market conditions change. This awareness enables you to tweak your investment decisions accurately. This is very important while undertaking volatile markets like crypto where the market can change drastically day to day.
That brings us to an important point in crypto trading. FOMO or the fear of missing out is one of the most popular crypto terms that has gained massive popularity across many communities. But what exactly does FOMO refer to and how can you deal with it?
At its core, FOMO is the feeling of losing an opportunity to make fast money. Thousands of crypto traders jumped in late 2017 exactly because of this emotion. Many traders entered the market in December of 2017 mostly because of this emotion and were left looking at massive losses by January of 2018.
This is where your emotional intelligence steps in. You have to approach the market in a neutral way, gauge your risk appetite and take a position in accordance with where the market is going based on your analysis. A lot of time FOMO is associated with greed and is showcased at the top of the markets. A place where novice investors and traders buy an asset at inflated prices only to see it go down in shortly after.
FUD – also known as Fear, Uncertainty, Doubt – is also prime emotion that invades many traders’ minds. This feeling is similar to FOMO and is usually displayed when markets end up having major sell offs and investors flee their positions due to fear of further losses.
Most disciplined investors use pre-determined stop losses to set loss targets in case price action goes in the opposite direction of their original plan. When real FUD kicks in, most traders/investors forget everything and rush into selling their positions just like when FOMO kicks in and they forget everything and buy into positions at inflated prices.
Be it the commentators, influencers, coin creators or investors with vested interest. They are unintentionally (sometimes intentionally) manipulating retail investors by using fear. Whether it is the fear of missing out or the fear of losing money, it is this fear that results in wild rallies or wild drops.
Emotional intelligence can go a long way in reining in this fear and controlling irrational investor behaviour. Whether you feel you are missing out, or you feel you are trapped and may end up in deep losses, fear leads to irrationality. You may either buy when the prices are too high or sell when the prices are dirt cheap. Remember that the key principal of all investment and trading is to sell when the price is high and to buy when the price is low or as Warren Buffet put it, “Buy when there is blood on the street and sell when there is greed on the street.” If you took away anything from this short guide, take away that last sentence.
Crypto is no different from other investments. Whether you are fearful that you missed out an opportunity to clock profit or fear losing money, fear will most likely lead to eventual losses. Your trading decisions have to be guided by emotional intelligence and a disciplined approach to create sustainable profitability over the long term. Whether you need to put in stop losses or set profit taking targets, you’re much better off with a plan than without one.