Lessons From Crypto Trading That You Must Know Now
Only a portion of the struggle is learning how to trade. The other half is in your own mind. There are a lot more lessons that you can actually learn once you trade cryptocurrencies.
In this article, we'll let you know the lessons that you should be able to grasp as a crypto trader. So, even if you haven't started trading, you are still able to know what are the possible things you can learn from getting exposed to crypto.
What Lessons Can You Learn From Crypto Trading?
Margin Calls Are Scary
Traders are no different from the rest of us in their dislike of losing money. Losing £1,000 is more painful than getting £1,000 in our opinion. This mismatch may lead to unproductive trading choices, but it also serves as a natural instinct that shields us from financial hardship.
COPYRIGHT_WI: Published on https://washingtonindependent.com/lessons-from-crypto/ by William Willis on 2022-01-14T03:22:25.867Z
For fear of not being able to recuperate their credit lines, lenders would require borrowers to either put up more money or sell assets in order to satisfy the debts they have incurred. Because declining asset values affect all lenders at once, "margin calls" often occur all at once.
Lessons From Mental Accounting
Richard Thaler, an economist, predicted that some traders would lose $12,000 in 15 years. He came up with the notion of mental accounting, which shed light on the illogical ways in which people deal with money. Researchers found that gamblers did not respect "house money" they had just won at the casino in the same way they valued money gained through hard effort. When they gambled with their own money, they were significantly more irresponsible.
In this regard, there are two important points to remember:
- Don't chase losses at all.
- There are no gambling chips in winnings.
The Disposition Effect
Growing your profits and cutting your losses. These are one of the most essential and difficult laws to follow since it goes against our natural tendencies to avoid suffering and seek pleasure. It is a delight to sell winners and a dreadful experience to sell failures, therefore we avoid it at all costs.
When Professors Shefrin and Statman initially coined the term "the inclination to sell wins too early and ride losers too long," it was an accurate description of their findings (1985).
They referred to this as the disposition effect, a human inclination.
The Shrinking Phase
Even if a part of us understands we'll lose money in the long term if we cling to a dying investment, why do we do it?
Research demonstrates that we don't worry nearly as much about the future version of ourselves as we do about the current version of ourselves. Instead of accepting less suffering in the here and now, we're often willing to take on greater discomfort in the future.
When a trader sells a stock or a cryptocurrency these days, he makes a deliberate decision to move on. He doesn't keep an eye on the price of that cryptocurrency over the next few days or weeks and wonder what might have been; instead, he goes on to something else and forgets about it.
This is a common mindset among new traders. Although not as bad as you think, it affects most traders, especially in terms of decision-making.
Losses Are Inevitable
It's possible to have a good time even when you lose! Think about how much money you'll save in taxes if you take a loss. It's not nice, but it's a good way to feel better about it. First of all, congrats if you're generating enough money to qualify for Capital Gains Tax. Just remember that selling at a loss can help lower your tax payment, so don't feel guilty about it.
Comparable tax treatment is now in place for crypto traders in the UK compared to those who invest in stocks. When your tax-free limit is depleted, you'll have to pay capital gains tax on any earnings (regardless of losses) that you've made.
If you've had a streak of bad deals, try tossing coins hundreds of times to lift your spirits. It is not uncommon to see five heads or seven tails in a row on a frequent basis. As a trader, you're going to have losing streaks, but if they get to the point where you're self-sabotaging, that's the last thing you want to happen.
Making a profit is the goal of each investor or trader. In other words, it's not about acquiring an adorable new plush toy. They are especially vulnerable to these attachment biases among Bitcoin investors. Millions of individuals throughout the world have been swept into this quasi-religious conviction in Bitcoin's destiny as the world's most powerful currency.