The bull cycle in crypto has started where altcoins like XRP or Tron(TRX) are showing double digit gains on a daily basis. For someone who has been in crypto for more than 10 years this doesn’t surprise me anymore.Have some money left and like to take some risk? Just ‘ape-in’ any crypto token and you can print money.However, many new crypto investors fall into the trap of GREED emotion. Meaning, they see their investments rise on a daily basis and fall in love with a certain crypto token.As a result, they forget to take a profit and end up with hardly any profits or even a loss. Trust me, I have experienced this many times in crypto and know exactly how deception feels.Therefore, understanding the psychology behind crypto trading or investing is crucial for success. In this comprehensive guide, we’ll explore the emotions in the crypto markets, the three market stages, the Wall Street Cheat Sheet, and how FUD and FOMO impact crypto market psychology.Understanding crypto market psychology starts with the emotions every single trader has. Moreover, to start being profitable it’s essential to have control over your feelings when markets start acting volatilely.To overcome these emotions, it’s best to acknowledge them first. Therefore, it’s very wise to answer the following question:What Are The Emotions in the Crypto Markets?Cryptocurrency markets are incredibly volatile, often triggering a rollercoaster of emotions among traders. Understanding these emotions is vital:Greed: When prices surge, many investors become greedy, fearing they’ll miss out on massive gains.Fear: On the flip side, fear sets in when prices drop rapidly, causing panic selling.Hope: Investors hold onto hope that declining assets will recover, sometimes longer than they should.Regret: Regret occurs when investors make impulsive decisions and later regret not following their strategy.Excitement: Excitement takes over when crypto enthusiasts anticipate a big win.Frustration: Frustration arises when traders make losses, and question their decisions.The different emotions and related crypto market cyclesFOMO is the fear of missing out on potential profits when an asset’s price is rising rapidly. It can lead to impulsive buying, often at the peak of a rally.Let’s start with a practical example of the greed emotion, which mostly occurs by beginners enter the crypto markets. Greed or FOMO relates to the crypto market psychology of chasing shiny objects.For instance, Robert wants to leave his job and become a crypto trader. He sets aside some starting capital, joins some crypto Telegram groups, and follows the markets closely. Next, he sees them talking about a memecoin, opens the chart, and sees that the price is rising fast. He buys, goes to take a shower, returns, and sells for a quick profit. He does this again before lunch and strings together a few successful trades. Robert starts to feel confident that he is a talented trader.Related: Trade Crypto with Telegram Bots(Full guide)So far so good. Robert keeps trading without a system or a plan and is being fooled by a rapidly rising crypto market. The market has rewarded his bad behavior. We know how this story ends — Robert continues to make impulsive trades and eventually loses his capital.Bitcoin Fear & Greed Index showing current market sentimentCrypto market psychology is a theory that underwrites the price action in any market. Meaning the price is driven by the emotions of all participants. When these emotions reach extremes, it can signal a reversal in the current trend.The emotions mentioned earlier in combination with crypto market psychology define the direction of a market trend. In order to pinpoint the current market cycle, here are three stages of market psychology:Stage 1: Bargain HuntingThis is when early adaptors enter the market and start accumulating new assets. At this stage, the market is moving sideways or slightly up for a long time and interest from retail traders is very low.Overall, the sentiment of the market is mostly fear or even depression and most social media channels(Twitter(X), Discord, or Telegram) are talking about a bear market. Also, whales(big investors) are using this stage to use the Dollar Cost Averaging(DCA) trading strategy to take a position.Stage 2: FOMOThe trend of the market is obviously an uptrend and new investors(mostly retail) are rushing into the market. On Twitter(X) new crypto coins are becoming trending topics and all your crypto friends are suddenly making money.Consequently, fear of missing out is a common emotion and causes rising crypto prices faster and faster. Additionally, market prices are becoming overextended and even forming signs of a bubble. Often this stage starts with optimism among traders and ends with emotions of excitement and thrill.Stage 3: CapitulationAt this stage, if you still have a position in the markets then it’s time to sell and go on a very long holiday. At the beginning of this stage, the market is already trending down but traders are still having faith in higher prices. Most of the retail traders are still in the markets and are ‘Buying the Dip‘.Because of the continuous downtrend emotions are rapidly moving from anxiety, and denial to panic and finally capitulation. Traders have lost faith in higher prices and are selling their cryptocurrencies at bargain prices. Finally, this stage ends when the prices reach a bottom and will be trending sideways for a very long time.BTC price during the Bullrun of 2021In general, emotions hitting extremes among traders isn’t only a typical thing in the crypto markets. Moreover, it can relate to any asset market and has a tracking history of hundreds of years. Again, any market is driven by emotions and we are all human beings, aren’t we?A good example to illustrate this is the Wall Street Cheat Sheet. It represents a general chart that visualizes the market psychology of an asset. In addition, it contains 13 market emotions that occur 99% of the time:Disbelief: As prices rise, the majority still disbelieves the rally.Hope: A glimmer of hope emerges as prices continue to increase.Optimism: Investors become more optimistic, expecting the rally to continue indefinitely.Belief: Belief solidifies as gains persist, and the public jumps in.Thrill: Excitement reaches its peak as prices skyrocket.Euphoria: Euphoria is marked by irrational exuberance, often followed by a sharp correction.Complacency: Investors grow complacent, assuming the good times will last.Anxiety: Anxiety sets in as prices start to drop, and investors worry about their investments.Denial: Many refuse to accept the downward trend, hoping for a quick rebound.Panic: Panic selling leads to a market crash.Capitulation: Investors give up and sell at any price.Anger: Anger and frustration are common as investors realize their losses.Depression: The market hits rock bottom, and investors are in despair.Wall Street Cheat Sheet: Psychology of a classic market cycleFUD stands for Fear, Uncertainty, and Doubt. It’s a strategy used by market manipulators to spread negative information or rumors about an asset to induce fear and drive prices down.Unfortunately, in the volatile crypto markets, this is a common behavior and as an investor or trader, you should be aware of this.For example, during the bear market in cryptocurrency in 2018/2019, one prominent example of FUD (Fear, Uncertainty, Doubt) was the spread of negative news and rumors related to Tether (USDT), a stablecoin that is pegged to the value of the US dollar.At that time, there were concerns and allegations circulating in the crypto community that Tether might not have sufficient reserves of USD to back all the USDT tokens in circulation. Some critics claimed that Tether was operating without proper transparency and conducting fractional reserve banking, which could have serious implications for the stability of the crypto market.These rumors and uncertainties led to fears among investors that if Tether’s value were to plummet, it could trigger a major market crash. As a result, many traders became anxious and started selling their cryptocurrencies, contributing to the overall bearish sentiment in the market.Let’s face it: Emotions(positive and negative) are unmistakably related to crypto trading. But how you handle them can make all the difference in your trading journey.So, here’s a simple and effective approach to deal with losses and boost your crypto trading journey:Keep Perspective: First things first, remember that even the best traders experience losses. It’s normal. By keeping a cool head and not getting too attached to individual trades, you can avoid emotional decisions. For instance, imagine you invested in a cryptocurrency, and its price suddenly dropped. Instead of panicking, keep in mind that every trader, including the pros, faces setbacks.Learn from Losses: Treat losses as valuable lessons. Take time to analyze why you lost and identify any mistakes. Adjust your trading strategy and risk management based on what you’ve learned. Every loss can be an opportunity to become a better trader in the long run. So if a trade didn’t go your way, analyze why it happened. Did you miss crucial information? Did you overextend your investment? Use these insights to improve your next moves.Build a Support System: In tough times, having a mentor or a trading community to lean on is gold. They can offer guidance, share experiences, and provide much-needed support. Knowing you’re not alone can help you stay motivated and focused on your goals. For example, joining some reliable discord servers or seeking advice from an experienced trader can be like having a trusted friend by your side when the going gets tough.Mindfulness for Emotional Balance: Emotions can run wild in trading. Practicing mindfulness and meditation regularly can help you manage these emotions and reduce stress. It’s like building emotional armor that keeps you calm and focused during challenging times.In the exciting world of cryptocurrencies, there’s a simple yet smart crypto trading strategy: Go against the crowd. Here’s how it works, and I’ll use some practical examples to illustrate:1. Buy Low: When most people are feeling disappointed or scared because cryptocurrency prices are falling, that’s your signal to buy. Think of it as getting a great deal on something you believe will be worth more in the future.For example: Imagine the price of Bitcoin dropped significantly(30%), and many folks are worried. You decide to buy some Bitcoin at this lower price because you believe it’ll go up again.2. Sell High: On the flip side, when everyone is excited and rushing to buy a particular cryptocurrency because they think it’s going to skyrocket, it might be a good time to sell. Picture it like selling something you bought at a discount for a nice profit when it’s in high demand.For example: Let’s say a new Memecoin like Pepe Coin is getting a lot of hype, and prices are soaring. You decide to sell some of your PEPE when it’s at its peak price, locking in your profit.The Secret Sauce: The secret to success in this strategy is to pay attention to the emotions of the market. When people are overly optimistic, prices tend to be high, and it might be a good time to sell. When fear or disappointment takes over, prices drop, and that can be a good time to buy.So, remember the golden rule to boost crypto profits: Buy low when others are scared, and sell high when others are enthusiastic. This approach can help you make the most of your crypto investments.
