Institutional trading, which involves large financial entities and professional investors participating in financial markets, is influenced by emotions and cognitive biases.
When it comes to institutional investments in crypto, those biases increase drastically. While there is a variety of institutional services helping investors start trading crypto efficiently, there should also be emotional support and tools protecting from trading “under pressure”.
Emotions in Crypto Trading: Why They Harm
Successful institutional traders are not born but become. Every beginner trader experiences emotions and biases that harm their trading decisions:
Fear and greed. The fear of losses may lead to panic selling, contributing to market volatility. On the flip side, the desire for higher returns may drive institutions to take on more risk than they initially intended, leading to over-leveraging.
Institutional traders may fall prey to overconfidence, believing in their ability to accurately predict market movements. It can lead to excessive trading or ignoring warning signals.
Regret aversion. The fear of making the wrong decision may lead to institutional traders hesitating or delaying actions, potentially missing out on profitable opportunities.
Confirmation bias. Institutions may be prone to only notice information that supports their existing beliefs or investment decisions, leading to a lack of analysis and flawed strategies.
Institutional traders might anchor their decisions based on past prices or performance, overlooking new information that contradicts their initial reference points.
Trading Mindset Strategies
Here are practical steps to train your mindset for better trading results:
Develop and adhere to systematic trading plans based on analysis and predefined criteria like targets, exit strategies, etc.
Discipline lies at the core of stability for emotional individuals. Follow the pre-set rules, and don’t allow for impulsive decisions out of your plan.
Emotional awareness. Practice mindfulness to manage your emotions while trading. Learn to keep a cool head under high pressure.
Implement risk management psychology. Set clear risk-reward ratios and adhere to them. It will help you maintain a balanced approach to trading and prevent emotional reactions to uncontrollable events.
Take notes or write your emotions and outcomes to learn from your mistakes.
Communicate with like-minded people, share your experience, and ask how they cope with emotions in trading.
Take breaks. Stop constantly monitoring the market. Take a break, reduce stress, and make sure your mind is clear for some time. It will refresh you and help for better decision-making with no pressure.
Operating large trading amounts, institutional investors experience extreme emotional tension, for once mistaken, they risk losing everything. That is why learning how to control emotions, having a clear plan, adhering to strategy no matter what, and giving yourself quality rest is crucial for those engaged in crypto trading.
Read more:
Psychology of Institutional Crypto Trading