In the penultimate entry in the ETERBASE Crypto Trading Series, we’re going to delve deeper into the role that mindset plays for a successful trader.
Last time out we finished up discussing how emotion can have a significant bearing on your trading career, but how should you deal with not only a loss but a bad decision?
For every trader, this point will come, and anyone who tells you different isn’t being entirely honest.
Losing trades as a result of a bad decision is just a grim reality of the trading lifestyle. It happens.
The secret is to be able to deal with it and move on quickly with a lesson learned on how not to make the same mistake again.
How to deal with making a bad decision
When you work in a job, you probably view your bad decisions differently. You may have had a boss who would come down heavily on you, reprimanding you and pointing out where you went wrong.
Many times you probably wished you could just acknowledge the mistake quietly and move on from it without much fuss.
Well, as a trader you’ll find yourself able to do just that, but the chances are that you’ll feel even worse after making a bad decision in your trading career than you ever did during your working life.
When you make a bad decision in trading, the effects are felt in your own pocket, and you also have to accept that the blame sits squarely with you.
In a job, you can always pass a mistake off as something to do with the task you were given, unclear instruction from upper management and so on.
Not now. The only person responsible now is you. How you deal with this will go a long way to determining how you progress as a trader.
The first thing you have to remember is that bad trades and mistakes are part and parcel of the trading game. It will happen.
Once you realize that you’ll find it easier to move on from a bad decision that has cost you a profit.
The key is to try to learn a lesson from every loss. Look for ways you can improve your trading technique in the future.
Applying the value theory
If we follow the current economic theory the value of a commodity is determined by the marketplace, essentially how much someone is willing to pay.
Famous economist Adam Smith helped to expose this theory to the masses, although he was certainly not the first person to think this way.
There are two primary factors at play when something is valued, and those are that people are basically forced to place value on things and that those same people are usually easily manipulated.
A little over four years ago, Bitcoin was something that fans of the cryptocurrency were giving away for free. This was usually due to the owner's belief in the technology itself, and the ideology behind it. They were keen to help spread the word as best they could.
Many of those same people are involved in cryptocurrency trading today, and if asked today, for the most part, they wouldn’t dream of giving Bitcoin away to anyone.
The reason? A change in value.
Bitcoin in itself hasn’t changed since those days, but the value placed upon it certainly has, and it certainly did at the tail end of last year (2017) for sure.
As a crypto market trader, you should always be aware of how to value cryptocurrency, but you should also be mindful of how other people view the commodity.
Most people are quite easily manipulated, and when it comes to a commodity like crypto, we often see so-called whales (people who buy and sell assets in vast quantities) take advantage of this mindset.
When a whale sells, you’ll many times see the general trader become fearful and follow suit, acting upon a sudden change in the market.
This is manipulation at its best.
A good trader will weigh up the movements in the market with their own opinions, bringing into play the concept of ‘just price.’
When you see a cryptocurrency drop in value, ask yourself if you believe this to be the ‘just price,’ and if you honestly believe that it’s below the ‘just price,’ then you should consider buying. If you deem it to be above the ‘just price,’ then the best course of action is to leave it be.
The lesson here is not just to follow the movement of the market exclusively. You should absolutely take it into account but never rely on one source of information for your trading.
As you grow as a trader, you’ll find that you become more adept at reading the market, and in figuring what is a good deal and what isn’t.
To reach that level of trading ability, it will simply take time and experience. Getting to know the market, and the way in which crypto shifts depending on circumstances is something you pick up with experience.
As they say, there is no substitute for experience.
Well, that’s the end of part four of the ETERBASE crypto trading series! If you want to really dive in on some of these discussion points in depth, then we’d encourage you to check out our FREE trading guide, which is available here.