Best Practices to Stay Disciplined in Volatile Crypto Markets

How to deploy the best strategies and have a trading plan to stay disciplined in volatile cryptocurrency markets.

Best Practices to Stay Disciplined in Volatile Crypto Markets

Do you often find yourself constantly checking price fluctuations and finance charts? Well, when money is on the line, especially in the cryptocurrency market, it’s easy to lose your sanity. There are no specific indices to measure the volatility, however a quick glance through historical price charts indicate that skyrocketing highs and depressing lows occur at a much faster and extreme pace in the cryptocurrency market. In 2020 alone, the price of bitcoin grew by 300%, however no investment is completely risk free in spite of this spike.

Moreover, investing in cryptocurrency is like going to a casino. It’s very difficult to detach yourself from it, and it's easier to get lured by big numbers. Making profits in such a volatile market is quite a bit of an effort. You need more than just knowledge and technical abilities to be successful. In the fast paced and dynamic world of trading, it’s easy to make rash and greedy decisions. An often understated tool to ensure your physical, psychological and emotional wellbeing is trading discipline. Maintaining stability, patiently making the right decision and knowing when to stop putting your money needs a calm and disciplined state of mind.

Cryptocurrency Markets

Let’s begin by understanding why it is important to maintain trading discipline:

  • Since the crypto market is extremely prone to price fluctuations, severe losses can lead to monetary as well as emotional damage.

  • Unnecessary risks such as snap trades in pursuit of high rewards can lead to severe losses in the long run.

  • High profits and positive trading can lead to overconfidence and hasty decisions several times.

  • You might hold on to an asset longer than you should in the pursuit of high rewards, which might turn negatively on you.

  • You might face mental and emotional challenges after a market volatility, if you hadn’t strategized well.

As mentioned above, several things can go wrong if you do not maintain trading discipline. Devising a few short-term and long-term strategies can help you overcome most of these problems, and maintain a profit-loss balance.

Best Practices, Tips, and Strategies

Here are a few tips, strategies and guidance to stay disciplined in the notorious crypto market:

Plan long term investments

Since the crypto market is highly volatile, it makes more sense to plan a long-term investment. This allows you to take advantage of the high-return opportunities and guard against short term behavioural biases. Moreover, this helps you overcome the recency bias, and it helps you think beyond what happened recently, and come to a reasonable conclusion. Hence, through this strategy, one can turn the volatility of the market in their favour, since the returns of a long term investment are cumulative.

Avoid emotional decisions

The cryptocurrency market has a lot to do with the mindset of the trader. A beginner may experience serious losses or failure in the beginning, which might affect his psychological and emotional well being. On the contrary, there may be instances where someone reaps huge profits that result in overconfidence. Such instances lead to emotional and rash decisions that might not have positive repercussions. The key here is to understand that you keep learning as you trade. Hence, it’s important to be patient and disciplined, and think practically rather than emotionally.

Invest in multiple digital currencies

One of the main strategies to reduce risk in this market is to diversify your portfolio. This means investing in several digital currencies rather than just one. This reduces the risk factor drastically, because even if one investment fails, you have the remaining to back you up. Diversification will reduce the burden of performance from just one currency, and thus reduce related risks and stress.

Don’t get too greedy

It is often seen that once a trader starts earning profit, he gets greedy to earn more. Here, it is important to not get carried away and stick to the plan and strategy that you devised.

On the contrary, when you face a loss, take it as an opportunity to learn. Analyse the situation practically, and understand why you faced the losses. Revise your strategy if needed, and don’t let it trigger anger or despair in you.

Have other sources of income

A very important aspect of cryptocurrency trading is to understand that it cannot be your only source of livelihood. Given the nature of the market, it’s more rational to have a main source of income, while keeping this as a side source. This way, you won’t be engulfed in the profit-loss balance, and it would be easier to manage your finances.

Accept the inevitability of downtrends

Just like any other market, downtrends in crypto markets are quite common. Navigating through these tough times will never be easy, but there are several strategies that you can devise prior to investing that would minimize your losses. Hence, it’s important to devise a plan that helps you foresee downtrends, and devise ways to strategically maximise long-term profits.

In essence, it’s important to take a break from constantly staring at your phone and monitoring the price fluctuations. Volatility in crypto markets is unavoidable. Several traders enter the market hoping to make huge profits, but it’s important to understand the importance of strategizing and discipline in this field. Crypto markets work on rational and logic, rather than emotions. With the correct mindset, it can offer great opportunities for investments that can turn quite profitable. In conclusion, following the above strategies and maintaining trading discipline can help you go a long way in the crypto market.