With stories of overnight millionaires ringing in their ears, more and more people are joining the cryptocurrency market. In fact, Binance, one of the largest cryptocurrency exchanges in the world just recently added 240,000 new users — on top of the millions of new users they gain every week. And Coinbase, another popular US-based exchange surpassed 13 million users. The siren song of easy money and near-instant gratification is hard to ignore, especially when there are so many stories about gains and next to nothing about losses.
Getting into the crypto market can be intimidating, especially if you’re relatively new to investing in general. But, with a little bit of research and patience, you’ll quickly start to see profits roll in. And that has been my experience; with relatively little effort, I’ve seen my cryptocurrency investments gain more and more steam as the months go on. But, I always have to be on guard for the biggest trap of not only crypto investing but investing in general. Emotional investing.
For those unfamiliar with the term, emotional investing refers role emotions – like elation over making 100% returns in two days or regret that you sold a certain investment right before the price tripled – play in making investment decisions. It’s incredibly easy to get swept up in an investment that’s on the rise, only to lose everything when it crashes. Or to remember that coin that went through a slight dip, only to go up 300% the next day. The highs and lows of crypto-investing are dizzying, making it even more difficult to make rational, well-thought-out decisions.
Avoiding Emotional Investing
This may sound impossible – and there are certainly going to be times where your emotions will get the better of you – but if you don’t learn to take your emotions out of the equations as much as possible, you’re going to end up losing much more than you gain in the long run.
Create a Specific Plan — and Stick to it, No Matter What
One of the biggest emotional pitfalls is greed – the idea that if you just hold onto that coin for a little longer, or you buy into that coin that’s on the way up, your investment might be worth more. By creating a specific plan for when you’ll buy a coin and at what point you’ll sell that coin is essential. Figure out your numbers, whether you plan to sell when the coin has gone up 50% or 150% (or if a coin goes down 50% and you need to get out), and stick to them. No matter what. That doesn’t mean you can’t feel regret when you sell a coin that goes up 200% the very next day, but don’t hold onto it. Recognize that you still made money and move on.
Timing is Everything
If determining when to sell is vital, knowing when to buy is equally as important. With so many coins out there and the marketing in a constant state of flux, buying at the right time can make or break you. Don’t get swept up in a coin on the rise. It’s tempting, and you might make some money, but chances are, you’ve already missed the window of opportunity for maximizing your profits. You’ve heard it before, but it’s true; buy low, sell high. Buy when the markets are down, be patient. Remember your plan and don’t panic at every little rise and fall of the market.
Be Patient and Remember Your Goals
If avoiding emotional investing is difficult with traditional investments, it’s 1,000 times harder with crypto investments. Extreme highs and lows happen in moments rather than days; gains are more dramatic but so are losses. Remember that just because a coin dips, that doesn’t necessarily mean it’s going to stay down…but keep in mind that it could and be prepared to get out. It’s tempting to simply HODL (hold on for dear life) through everything, and while that could be the best strategy, it’s important to always remember your plan and stick to it.
When you let your emotions – like fear, greed, elation, denial, regret, or overconfidence – run your investing, you’re bound to fail. I’m certainly not trying to say that you can’t feel those emotions at all – because you’ll likely run the gamut on a daily basis – just don’t let those emotions bleed into your decision making. Stay rational and level-headed and you’ll enjoy the dividends, week after week.