Basics of psychology in cryptocurrency trading

by MD Tanjib Forex Trading Author

The cryptocurrency market doesn’t follow the rules of technical and fundamental analysis. Only psychology works here. Who will be stronger: institutional investors, shaking the market with the capital, or private investors, who manage to make profits from these price swings in the short run. Psychological patterns of cryptocurrencies’ moves can form the basis of successful strategies. You will learn from the article how to develop a correct psychological strategy for trading cryptocurrencies.

Psychology of trading cryptocurrencies

The cryptocurrency market is growing by the day. After BTC futures had been announced to start trading on CBOE and CME exchanges, bitcoin increased from $12 000 up to $17 000, breaking through 60% level of the total market cap. Other cryptocurrencies are growing fast as well; the total market cap had grown by more than 30% during two weeks, reaching the level of $500 billion. Such rapid growth attracts more and more traders to this market, they immediately face the need to choose a correct strategy. Well, forex brokers are too good at providing awesome offers. Like, LiteFinance provides an awesome offer called New Year Promo 2022.

It is hardly possible to make any forecasts for cryptocurrencies according to technical analysis, so indicator trading strategies are not relevant here. The market is still too young to test indicators on historical periods. Sometimes, it is possible to follow the forming of graphical figures (patterns), but the quotes are often unpredictable. One can apply fundamental analysis, but still, the price moves are hard to predict. For example, bitcoin, after the news about futures launch, is consistently rising with moderate corrections. IOTA, after positive news from the developers in late November, rose by 2.5 times during a week, but then went 40% down just for one day, from $5.48 to $3.11.

Trading on fundamental analysis is complicated by additional factors. First, there is no economic calendar. Second, there is no understanding, how the news will influence the quotes. Example: deep drawdown followed by a sharp rise in bitcoin price after Segwit2x canceled; investors didn’t understand at first, how to interpret the news.

The cryptocurrency market is driven by private and institutional investors’ psychology. That is what should be used to develop a trading strategy.